Abstract

This paper investigates two relationships in Sub-Saharan Africa. First, it studies the link between income growth and democracy, and second, the connection between democracy and financial development. Using data from 1970-2018, the first analysis, applies pooled OLS, fixed-effects, and instrumental variables to 46 countries. Simple models suggest a positive GDP link with democracy, consistent with Modernisation Theory. However, significance disappears once endogeneity and structural controls are included. The second analysis focusses on 36 countries, employing an autoregressive distributed lag model with within and Arellano-Bond estimators. This study reveals a robust positive effect of democracy on the IMF’s Financial Development Index, which was strengthened after correcting for endogeneity. Results indicate that income growth alone does not reliably drive democratisation, but democratic institutions can enhance financial sector development.

Keywords: Development, Sub-Saharan Africa, Institutions, Democracy, Financial Development, Emerging Economies

How to Cite:

Winter, B., Braithwaite, A., Berrebi, G., Kozhinova, N. & Semenov, N., (2025) “Investigating the Income-Democracy Correlation and the Impact of Democracy on Financial Development in Sub-Saharan Africa”, UCL Journal of Economics 4(1). doi: https://doi.org/10.14324/111.444.2755-0877.2048