Short and long-term impact of trade openness on financial development in Sub-Saharan Africa

The finance–openness debate has remained a complex one to date. Some studies argue that trade and capital account openness may promote financial development by enhancing foreign direct portfolio investments. Other improve policy openness. Yet, challenge faced researchers in their quest unravel the is lack of measures take country's global interaction interconnectedness into account. Our study addresses this extending recently proposed index panel data setting, examining short- long-term impact on for 43 sub-Saharan African (SSA) countries over period 1996 2014. We test performance pooled mean group (PMG) estimator against dynamic fixed-effects (DFE) (MG) estimators using standard Hausman test, order ensure most appropriate used estimate our dynamic, distributed lag model. use new measure SSA with each other find associated significant long term. In short term, effect not clear, but results suggest it be negative. then divide sample low- middle-income enhances low-income countries. By contrast, detrimental This finding suggests non-linear relationship between analysis step further role governance, human development, infrastructural as these are major issues infrastructure critical particularly words, factors help better explain openness–finance relationship. Besides, they important policymakers should when pursuing openness, growth agenda.