NEXUS BETWEEN FINANCIAL DEEPENING AND DOMESTIC INVESTMENT IN SUB-SAHARA AFRICA COUNTRIES

Abstract

Financial institutions play a key role in the mobilization and allocation of savings for productive use. However, the financial institutions of Sub-Saharan African countries are still punctuated with cases of under-performance of these roles. Hence, the study evaluated the impact of financial deepening on domestic investment in Sub-Saharan African countries from 1990 to 2019. The dynamic panel Generalized Method of Moments (GMM) estimator and Dumitrescu and Hurlin panel causality Tests were employed in the study. The findings of the study revealed that banking sector is a significant determinant of domestic investment in Sub-Sahara African countries with coefficient value of 0.070 and at 1% significant level. The study concluded that financial deepening promotes domestic investment in Sub-Saharan African countries. The study therefore, recommends that banking regulators in Sub-Saharan African, should encourage financial institutions to be efficient in their financial intermediation function by ensuring that funds from the surplus sector is efficiently channeled for domestic investment in the region.