Determining the Relationship Between Financialization and Economic Growth in South Africa: Utilizing an Enhanced Robustness Measure for Financialization

Despite the rapid financial expansion over the past two decades, South Africa’s economic growth has remained sluggish, raising concerns about the disconnect between financial sector development and overall economic performance. This study aims to investigate the relationship between financialization and economic growth in South Africa using three proxy variables, finance, insurance, real estate, and business services as a percentage of GDP; money supply (M3) as a percentage of GDP; and credit to the private sector as a percentage of GDP, alongside a composite financialization indicator. Using quarterly time-series data from 1994Q1 to 2025Q2, this study employs the autoregressive distributed lag (ARDL) approach to examine both short- and long-term dynamics and cointegration between financialization and economic growth. The empirical findings reveal that financialization exerts a positive and statistically significant influence on South Africa’s economic growth. Meanwhile, the estimation results reveal that financialization has a positive and highly significant impact on economic growth in South Africa, demonstrating the need for policies that promote and enhance its effects.