Do Financial Innovation and Financial Deepening Promote Economic Growth in Sub-Saharan Africa?

In this paper, we analyze the impacts of financial innovation and financial deepening on the economic growth of 14 sub-Saharan African (SSA) countries from 1995 to 2023. The autoregressive distributed lag (ARDL) approach and error correction model (ECM) were used to assess short- and long-run effects. The findings indicate that mobile cellular subscriptions and government spending are the main contributors to national economic growth and that money supply has a positive impact. However, the strong negative effect of capital formation on economic growth is contrary to expectations. Conversely, the findings confirm that gross capital formation has a strong positive effect on gross domestic product (GDP) growth in the long run. Bounds testing reveals varying degrees of cointegration across countries. Long-run relationships were confirmed in Senegal, Côte d’Ivoire, Ethiopia, and Zimbabwe, all of which showed evidence of strong cointegration. These findings support policy recommendations aimed at promoting sustainable economic growth in SSA economies through targeted policies that increase domestic credit in the private sector and attract foreign direct investment (FDI).