Economic volatility and financial deepening in Sub-Saharan Africa: evidence from panel cointegration with cross-sectional heterogeneity and endogenous structural breaks

Vinay Kumar Singh (), Salah Abosedra (), Ali Fakih, Sajal Ghosh () and Kakali Kanjilal ()
Additional contact information
Vinay Kumar Singh: Management Development Institute Gurgaon
Salah Abosedra: American University in the Emirates
Sajal Ghosh: Management Development Institute Gurgaon
Kakali Kanjilal: International Management Institute New Delhi

Empirical Economics, 2023, vol. 65, issue 5, No 1, 2013-2038

Abstract: Abstract We study the impact of financial deepening on economic volatility for Sub-Saharan African countries (SSA) from 1982 to 2019 in a trivariate panel cointegration framework. Two measures, broad money and domestic credit as a percentage of GDP, are used to capture the financial deepening holistically. The analysis considers the possibility of cross-sectional heterogeneity and endogenous structural breaks. The study finds that financial deepening indicators share a long-term relationship with economic volatility. Panel parameter estimates by Dynamic OLS (ordinary least square), Pooled Mean Group, and Fully Modified OLS suggest that broad money influences economic volatility positively when financial deepening is represented by broad money. On the other hand, when domestic credit is chosen as the proxy for financial deepening, the impact is negative. Thus, while domestic credit helps lower economic volatility, broad money increases it. At the same time, the estimators indicate that broad money has a stronger relationship with economic volatility as compared to domestic credit for SSA countries. The study offers policy suggestions based on the empirical findings that emphasise financial inclusion and wider credit availability through the spread of the banking network for attaining the goal of reduced GDP volatility and steady economic development. An increase in the money supply might lead to increased economic activity in the short run but results in increased GDP volatility over the longer term.

Keywords: Panel cointegration; Endogenous structural breaks; Cross-sectional heterogeneity; Financial deepening; GDP volatility; Sub-Saharan Africa (search for similar items in EconPapers)
JEL-codes: G2 N27 O16 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s00181-023-02415-9 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:empeco:v:65:y:2023:i:5:d:10.1007_s00181-023-02415-9

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-023-02415-9

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().