Bank-based financial development and investment nexus in Africa: evidence from quantile regression

Purpose This study examines the nexus between financial development and domestic investment in Sub-Saharan Africa (SSA), considering existing levels of domestic investment. Design/methodology/approach The study used a representative sample of 36 SSA economies from 2000 to 2023 and applied the fixed effects (FE) regression, the system generalised method of moments (GMM) and the quantile regression (QR). Findings The results show across all estimators that domestic credit, bank credit, private credit, deposit money bank (DMB) assets, liquid liabilities and financial system deposits (FSDs) significantly influence domestic investment in the region. Importantly, the financial development–investment relationship depends on existing domestic investment levels. Bank credit reduces investment in high-investment countries, while domestic credit, bank branches and bank assets promote investment at both low and high levels. Private credit, liquid liabilities and FSDs boost investment only in high-investment countries. Practical implications The findings imply that policies to boost domestic investment in SSA must be tailored to country-specific investment levels and the particular dimensions of financial development. Additionally, governments and policymakers in the region should diversify financing sources, such as equity and long-term investment funds, while strengthening both physical and digital financial infrastructure. This targeted approach will improve access to finance, enhance savings mobilisation and foster sustainable capital formation and economic transformation. Originality/value The study makes a significant contribution to the literature by incorporating existing levels of domestic investment in SSA—a factor that previous studies have largely overlooked.