DETERMINANTS OF FINANCIAL STABILITY IN SUB-SAHARAN AFRICA

Meshesha Demie Jima and Patricia L. Makoni
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Meshesha Demie Jima: Department of Finance, Risk Management and Banking. University of South Africa, Pretoria, South Africa
Patricia L. Makoni: Department of Finance, Risk Management and Banking. University of South Africa, Pretoria, South Africa.

Studii Financiare (Financial Studies), 2022, vol. 26, issue 3, 55-75

Abstract: Several factors determine the stability of a financial system. The main objective of this study is, thus, to empirically examine the key drivers of financial stability in the Sub-Saharan African (SSA) economies for the period of 2000 to 2019 using a dynamic panel Generalised Method of Moments (GMM). As financial inclusion and institutional quality broadly comprise of multiple individual measures, we constructed a composite index to proxy and represent each variable, respectively, which was then used later in the regression model to assess their effect on financial stability in the sampled economies. The findings of the study indicated that the lag effect and financial inclusion are the major positive drivers of financial stability in the SSA economies. Institutional quality, financial technology adoption and global financial crises also reflected a negative impact on the stability of a financial system in the region. Other variables seem to have no impact in the region. These findings underpin the need for policy makers and regulators to formulate and adopt macroeconomic policies that include more people in the financial system and markets, so that risks are spread over a greater populous, thereby sustaining financial stability. In addition, our scholarly contribution is that we highlight the possibilities of a trade-off between financial regulation, inclusion and digitalisation versus financial stability, which is an under- researched phenomena in financial studies.

Keywords: financial stability; financial inclusion; institutional quality; Sub-Saharan Africa (SSA) (search for similar items in EconPapers)
JEL-codes: C33 C38 E44 (search for similar items in EconPapers)
Date: 2022
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