Effect of Financial Integration on Economic Stability in Sub-Saharan African Economies: A Panel Spatial Approach.

This study examines financial integration, institutional quality, trade openness, inflation, and economic performance in Sub-Saharan Africa, addressing the gap in existing literature that overlooks spatial dependence and cross-country spillovers. Many prior studies rely on conventional panel methods that fail to capture the interconnected nature of African economies. This study adopts a panel spatial framework to provide more robust and policy-relevant evidence. Annual data from the World Bank covering 1990 to 2022 are utilized. The study applies Pooled Mean Group, Mean Group, and Dynamic Fixed Effects estimators, complemented by Driscoll–Kraay spatial correlation consistent estimates and threshold regression techniques. The analysis is based on five countries with 165 observations, capturing both short-run and long-run dynamics. The findings reveal that financial integration proxied by FDI to GDP ratio has a negative and statistically significant effect on economic performance (β = –1.757, p < .001). Institutional quality also shows a negative significant effect (β = –0.075, p = .021). In contrast, inflation and trade openness exert positive and significant effects (β = 0.987, p < .001; β = 1.436, p = .001). Threshold results indicate some non-linearity, although the threshold effect itself is not statistically significant. The study recommends strengthening institutional capacity, improving governance, and aligning trade and investment policies with domestic productive capacity.

Economic Stability, Financial Integration, Spatial Econometrics, Trade Openness, sub-Saharan African Economies.

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