This paper investigates the impact of a spatial variable on financial development in
SSA for the period of 1970-2005. It is a dynamic panel data model that uses
Arellano and Bond GMM estimation. The spatial variable is the financial
development in South Africa interacted with the ratio of distance from the other
SSA countries. The paper finds that financial development is geographically
sensitive, and thus not immune to spatial externality. The study indicates that there
is a spatial benefit (cost) associated with financial development
(underdevelopment).To confirm the robustness of our findings, we conduct
cointegration test to assess whether or not the spatial variable has any long-run
impact on financial development in particular and on economic growth in general.
In all, we find statistical evidence that financial development exhibits spatial
externality among SSA countries.