Does Financial Development Increase Education Level? Empirical Evidence from Sub-Saharan Africa

Abstract

This study analyzes the effect of financial development on education in a sample of 37 sub-Saharan African countries with data covering the period from 2000 to 2018. We use the nine measures of financial development proposed by the International Monetary Fund (IMF) and the three levels of education, including primary, secondary, and tertiary education. Applying the two-stage system Generalized Method of Moment (GMM), we find that financial development increases school enrollment in each level in sub-Saharan Africa. The gender results also show that financial development improves primary and secondary education for both male and female, except at the tertiary level where the effect does not appear to be robust for male. Based on these results, we suggest that the financial market and financial institution in SSA should be improved given its beneficial effects on the education system.

Impact of Financial Development and Remittances on Educational Attainment within the Context of Sustainable Development: A Panel Evidence from Emerging Markets

“…Financial sector development has the potential to positively influence educational attainment via financing educational investments, income, and economic growth; nevertheless, the adverse effects of financial development on educational attainment seem possible owing to imperfections of financial markets [12][13][14][15][16][17]. Empirical studies investigating the relationship between financial development and educational attainment have obtained different results in line with the theoretical considerations [13,14,[36][37][38][39][40][41][42].…”

“…They highlighted that indicators of financial sector development positively affected the quality at all education levels. Thierry and Emmanuel [15] also conducted similar research for the same sample through the two-step system GMM model. They discovered that indicators of financial sector development positively influenced school enrollment at all education levels.…”

“…First, a financial system with higher access, depth, and efficiency is expected to improve education through financing public, private, and individual educational investments and income and economic growth [12][13][14]. Yet, some researchers suggest a negative relationship between financial sector development and educational attainment resulting from financial market imperfections, such as asymmetric information problems and transaction costs [15][16][17]. At the same time, education can also make individuals more informed participants in financial markets and technology and, in turn, affect economic development and stability [18,19].…”

Does institutional quality modulate the effect of capital flight on economic growth in sub-Saharan Africa?

“…These indexes are combined to create a broad measure of FD. Recent studies such as Thierry and Emmanuel (2022) and Emenekwe et al (2022) used the FD index to proxy FD. The FD index data set is from the IMF database.…”