How Financial Development Heterogeneity, Macroeconomic Volatility, Domestic Investment, and Digital Economy Are Driving Sustainable Economic Growth in Africa

Abstract

The roles of finance are well stipulated in the various indicators of the sustainable development goals (SDGS). However, the extant literature still finds conflicting outcomes of the finance-led growth. Hence, this study redirects empirical evidence by unbundling the effects of financial development on sustainable economic growth into aggregated and disaggregated, focusing on seven robust indicators (financial development index, financial institution index, depth, and access, and financial market index, depth, and access) in selected African countries from 1995 to 2021. Similarly, the intervening roles of government expenditure, digital economy, domestic investment, human capital, macroeconomic volatility, and trade openness are evaluated based on advanced estimators. Findings show that the seven indices of financial development drive sustainable economic growth in Africa both in the long and short runs. Similarly, government expenditure, digital economy, and human capital promote sustainable economic growth both in the short- and long-term periods. The driving effects of domestic investment are only noticeable in the long run. Conversely, trade openness and macroeconomic instability are noted to be growth-deterring. Policy insights that support sustainable economic growth in Africa emanate from the outcomes.