This study investigates the linear and nonlinear effects of financial development on trade openness in Sub-Saharan Africa.
This study focuses on SSA and its sub-regions over the period 1990–2022 to investigate both linear and non-linear relationships between financial development and trade openness. While the former utilises CS-ARDL, the latter is captured within a panel threshold model.
We find overarching evidence that financial development enhances trade openness in Southern and Central Africa, with effects evident in both the short and long run for Southern Africa. Threshold analysis, however, provides only weak evidence of non-linearity across SSA and its sub-regions.
The main limitation of this study is its coverage, which ends in 2022 and therefore does not capture the potential impact of more recent global disruptions – such as ongoing geopolitical and climate risk events – on the relationship between financial development and trade openness in Africa. Nonetheless, the findings contribute a fresh perspective by examining this nexus through the lens of asymmetries, offering insights that can guide future research and policy discussions.
The findings carry important implications for trade policy, highlighting the need for policymakers in SSA to deepen financial systems while at the same time strengthening institutional frameworks, trade infrastructure, and industrial capacity.
This study highlights the threshold effects of financial development, suggesting that complementary measures are necessary for financial development to become a stronger driver of trade openness across the African continent. In doing so, it contributes to the broader discourse on how financial development fosters regional and global integration through trade openness.
