Effect of Stock Market and Bank Development on Savings in Sub-Saharan Africa
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Date
2025-12
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Kenyatta University
Abstract
Savings is regarded as one of the avenues to achieve higher economic growth and standards of living. Despite this significance, the savings rate remains low in Sub-Saharan Africa compared to the global average, middle- and high-income countries. It is, therefore, critical to understand the drivers of savings so as to realize its potential effect on growth. Literature suggests that the expansion of stock markets and banks plays a critical role in mobilizing savings. Theory predicts that stock markets and banks promote savings by lowering transaction costs, addressing information asymmetry, and offering enhanced opportunities for diversification hence, lower risks. Empirically, it is anticipated that stock market and bank advancement will promote savings. This theoretic and empirical predictions notwithstanding, the part plaid by security market expansion and bank expansion on mobilization of savings has not received much attention in literature, particularly in Sub-Saharan Africa. The study’s goal therefore, is to determine the outcome of stock market progress and bank expansion on savings in Sub Saharan Africa. The study analyzed panel data for 17 countries using the random effects model. The data was obtained from the World Bank. The study obtained indications of a significantly positive effect of liquid stock markets on savings in Sub-Saharan Africa. Regarding effect of bank development on savings, the study reports that bank expansion, assessed by private sector credit, hinders savings in Sub-Saharan Africa. Regarding control variables, the study finds that economic growth promotes savings in the region. Conversely, the impact of interest rates is significantly negative while that of inflation is insignificantly negative. These findings have shown that the expansion of liquid securities markets and higher economic growth promote savings. Policy makers should, therefore, enact policies to ensure highly liquid stock markets for higher national savings. Policy makers should also advance growth friendly policies to enhance disposable income and higher savings rates. Finally, the finding that interest rates, as measured by real deposit rates, negatively affects savings may reflect low levels of interest on deposits. Policies to enhance returns on deposits may thus be required to promote higher savings. The finding that the effect of security market growth, measured by shares traded ratio, on savings is negative and significant reflects low market activity. Further studies on causes of low levels of stock market activity will enrich available knowledge.
Description
A Research Project Submitted to the Department of Economic Theory in the School of Business, Economics and Tourism in Partial Fulfilment of the Requirement for the Award of the Degree of Master of Economics (Policy and Management) of Kenyatta University, December 2025.
Supervisor
1. Dr. Angelica Njuguna