Stock Markets Development in Sub-Saharan Africa: Business Regulations, Governance and Fiscal Policy

Kofi B. Afful, Kofi F. Asiedu


This study examines the effectiveness of the state in stimulating stock market activity in sub-Saharan Africa (SSA) using fiscal policy, governance quality and stock market as the main determinant variables. Using annual data from six selected sub-Saharan African economies and employing a dynamic panel data estimating technique, we find that government effectiveness stimulates capitalization while business regulations decrease it in SSA. In addition, we find that final consumption expenditure, interest rate spread and credit to the state increase capitalization whereas credit to the private sector and inflation had adverse effects. With respect to business regulations, our study reveals that starting a business, closing it and enforcing contracts engender stock market activity in SSA. Among the several variables that stimulate stock market activity; only foreign direct investment (FDI) did increase capitalization. Thus, the study concludes that since not all government institutions and business regulations are critical to stock market development, various governments should be careful and selective in their economic stimulants if they want to develop their stock markets.


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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

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