Sub-Saharan Africa’s Financial Market Development Gap: A Human Capital Deficiency? (Decomposition of Banking, Financial Sector Intermediation and Stock Market Failures)

Abstract

This study evaluates the influence of human capital on development of three elements of a financial market, namely: banks, financial sector intermediation to the private sector and stock markets, in Sub-Saharan Africa. The developed model is relatively innovative as it explicitly models financial market failures, includes a nonlinear variable and is underpinned by adaptive expectations. Tertiary education was found to be critical for banking, financial sector intermediation and stock market development. The study finds that, for the banking industry, past failures narrow current gaps. However, increased public expenditure on education is important for only financial sector intermediation and stock market development.

Keywords: Financial markets, Human capital, Sub-Saharan Africa.

JEL Classification: G10, O16, O55.