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Financial sector development and macroeconomic volatility: Case of the Southern African Development Community region

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  • Forget Mingiri Kapingura
  • Nwabisa Mkosana
  • Suhal Kusairi

Abstract

The study examines the effect of financial sector development on macroeconomic volatility in the Southern African Development Community (SADC) region for the period 1980–2018 employing the Cross-Sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) model. The empirical findings show that banking variables have a negative and significant effect on growth volatility in the SADC countries. Also, stock market capitalisation, which is a measure of capital market development, was also found to have a negative effect on macroeconomic volatility when looking at the whole financial sector. The results suggest that a well-developed capital market where both the stock market and banking sector are thriving mitigates macroeconomic volatility. The empirical results however reveal that when the stock market is dominant, there is bound to be macroeconomic volatility. The results imply that pursuing the development of the overall financial system reduces macroeconomic volatility in a country as well as the region. Authorities should therefore ensure that policies geared towards development of the entire financial system are pursued.

Suggested Citation

  • Forget Mingiri Kapingura & Nwabisa Mkosana & Suhal Kusairi, 2022. "Financial sector development and macroeconomic volatility: Case of the Southern African Development Community region," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2038861-203, December.
    • Handle: RePEc:taf:oaefxx:v:10:y:2022:i:1:p:2038861
    DOI: 10.1080/23322039.2022.2038861
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    Cited by:

    1. Meriem Sebai & Omar Talbi & Hella Guerchi Mehri, 2024. "On the Banking Deepening and Economic Volatility Nexus in Emerging Countries: Evidence from a GMM Panel-VAR Approach," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(5), pages 430-442, May.

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