Causes of Financial Improvement in Sub-Saharan African Countries: should rule of law be considered?

Abstract Looking into the contributing factor of financial improvement in sub-Saharan Africa, this study pulls its basis from the McKinnon-Shaw model of financial liberalization and Schumpeter's innovation model. The ability to link financial institutions to financial development influences the choice of explanatory variables in this study, in addition to other important determinants proposed in the previous relevant study. We used a generalized method of moments (GMM) estimates on the way to establish relationships among variables. Both static and dynamic models show that GDP per capita is not always a full-size variable to explain the financial improvement. However, past financial improvements and the rule of law are life-size variables that explain financial improvements. The rule of law has proven to be one of the institutional factors considered and an important factor in explaining financial improvement. From this, it can be inferred that the rule of law and the impact of past financial growth remain decisive variables for the financial improvement of sub-Saharan Africa.