Sub-Saharan Africa’s Infrastructure Gap: A Failure of Financial Markets?

Abstract

This research examines the role of financial market failure in explaining Sub-Saharan Africa’s (SSA) infrastructure gap. The core infrastructure examined are energy, telecommunication and transport. The model includes a nonlinear interaction variable as well as elements of expectation models. The study finds that fixed effects are dominant for all infrastructure except mobile telecommunication facilities in SSA. The dynamic panel regression results indicate that for most of the considered infrastructure, financial sector intermediation to the private sector is most critical. Banking and stock market development are, generally, less important. There is evidence that there is an interaction between most considered infrastructure and financial sector intermediation.

JEL Classification: G2, O1, G10.

Keywords: Financial markets, Infrastructure gap, Sub-Saharan Africa.