EFFECT OF FINANCIAL DEVELOPMENT ON TRADE OPENNESS IN SUB-SAHARAN AFRICA

Abstract This study investigates the effects of financial development on trade openness in Sub-Saharan Africa using annual time series data which covered the period of 2000 to 2022, panel system generalized method of moment (GMM) as the baseline model as well as fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) as the models for robustness checks. Financial development was stratified into financial institutions and financial markets. Financial institutions were further explored via financial institution depths, financial institution access, financial institution efficiency and financial institution stability; while financial markets were measured via financial market depths, financial market access, financial market efficiency and financial market stability. Findings from system GM revealed that the results of the system GMM, it was discovered that financial development – financial institutions and financial markets have significant positive effects on trade openness in Sub-Saharan Africa. More specifically, this study found that financial institution depths, financial institution access, financial institution efficiency, financial institution stability, financial market depths, financial market access, financial market efficiency and financial market stability have significant positive effects on trade openness in Sub-Saharan Africa. This is also similar to findings made from the results of the robustness check – FMOLS and DOLS. From the results findings, we conclude that financial institution depths, financial institution access, financial institution efficiency, financial institution stability, financial market depths, financial market access, financial market efficiency and financial market stability have significant positive effects on trade openness in Sub-Saharan Africa. Based on these findings, this study recommends that financial development via financial institutions and financial markets as well as their depths, access, efficiency and stability should be improved by the authorities to improve the nature and quality of trade in Sub-Saharan Africa.