Financial stability gap and private investment nexus: Evidence from sub-Saharan Africa

The illiquidity status of financial institutions widens up the financial stability gap, hence affecting other economic agents that depend on the financial sector. The objective of the study is to determine how the financial stability gap affects private investment in sub-Saharan Africa (SSA). Annual time series secondary data from 33 SSA countries for the period 2007-2018 was used. Using the general methods of moments (GMM) estimation technique, we found that the financial stability gap beyond 109.9% becomes detrimental to private sector investment while government effectiveness and investment by the government improve private investment. The study recommends that financial institutions undertake liquidity protection measures as a means of protecting the stability status, while SSA governments invest in the economy and provide the needed business environment for private sector investment.