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Savings-investment-financial development trilogy: evidence from SSA

Ibrahim D. Raheem (School of Economics, University of Kent, Canterbury, UK)
Mutiu Abimbola Oyinlola (Department of Economics, University of Ibadan, Ibadan, Nigeria)

Journal of Financial Economic Policy

ISSN: 1757-6385

Article publication date: 3 April 2017




The study seeks to examine the role of financial development (FD) in the Feldstein–Horioka (FH) puzzle. The novelty of this study is based on the fact that the measures of FD are expanded to account for the qualitative nature of the financial sector (“better finance”).


The study used annual dataset for 37 countries in sub-Saharan Africa (SSA) for the period 1999 through 2010 and relied on the system generalised method of moments (GMM) technique, which takes accounts of endogeneity-related issues.


The estimated FH coefficients ranged between 0.419 and 0.720. The qualitative measures of FD have higher FH coefficient relative to the traditional or quantitative measure of FD (“more finance”). Hence, improvement in both the quantity and quality of the financial sector might be helpful in the mobilization, distribution and utilization of savings for investment purposes within these economies. The high FH coefficients obtained suggest that the FH puzzle does not hold in the SSA region.

Practical implications

Policymakers should formulate and design policies that would seek to ensure the development of the financial sector both in terms of quantity and quality. While taking this into consideration, special attention should be devoted to the qualitative measure of finance.


The study extends the work of Adeniyi and Egwaikhide (2013) by providing different and, possibly better proxies for FD to capture the efficiency and the qualitative nature of the financial system. This crux of the study serves as the value addition to the literature, as no other study the authors are aware of, has considered the importance of “better finance” indicators in the saving – investment nexus investigation.



Raheem, I.D. and Oyinlola, M.A. (2017), "Savings-investment-financial development trilogy: evidence from SSA", Journal of Financial Economic Policy, Vol. 9 No. 1, pp. 20-33.



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