Inga Nomandla, Forget Mingiri Kapingura
Abstract
Financial sector development is vital for economic resilience and inclusive growth. In the SADC region, development in this sector remains uneven, with limited clarity on its key determinants. This study examined how macroeconomic, geographic, and institutional factors influence financial sector development in the SADC countries between 2006 and 2020. The study employed the Generalized Method of Moments (GMM) given the challenges of endogeneity on the variables of interest. Six models were estimated to examine the differential impact of the variables employed. Key findings showed that in the banking sector, population growth and Foreign Direct Investment (FDI) significantly support financial development, while GDP and population density have insignificant effects. Institutional quality, particularly the rule of law, has a strong and significant impact. For the financial markets, population growth, population density, and FDI negatively affect development, while GDP remains insignificant. The findings suggest that improving institutional quality and reducing trade barriers can significantly enhance the growth of the financial sector.