Nexus between financial integration, capital market development and economic performance: Does institutional structure matters?

Abstract

This study investigates the role of institutional structure on asymmetries dynamic impact of financial integration, capital market development on economic performance in Sub-Saharan Africa (SSA). The study classified economic performance into RGDPC, nominal gdp and human capital development, and employed (PNARDL) modeling framework, and a panel of 16 nations of SSA over the period 1996–2019. The finding of this research output can be summarize as thus: i.) In the long run, a rise in positive shock to the financial integration index leads to a rise in RGDPC, while a negative shock to FI leads to a fall in RGDPC. ii.) Both shocks (positive and negative) to MCAP reduce RGDPC. Institutional quality index (INSQI) is revealed to have a positive and significant impact on RGDPC in the long run and indeed intensify their asymmetries. iii.) Both shocks to FI exert inverse influence on nominal GDPC, while positive and negative shocks to MCAP exert a positive and negative influence on GDPC, respectively. INSQI also affects GDPC negatively and significantly and indeed reduces their asymmetries. iv.) Positive and negative shocks to FI reduce HCD as well as shocks to MCAP. INSQI, on the other hand, adds to HCD and intensifies their asymmetries. However, the lack of consistency in the results across the models suggest that the interplay between these variables are still undeveloped relative to other continents of the world, and the benefits are yet to be adequately harnessed.