The Empirical Link Between Financial Globalization and Macroeconomic Volatility in Sub-Saharan African Countries

Macroeconomic volatility remains a major conundrum in SSA countries despite financial market liberalization reforms aimed at global financial market integration and unconstrained external capital flows to foster macroeconomic stability. Therefore, this study examines the impact of financial globalization on macroeconomic volatility by comparing how the overall and sub-component indicators of financial globalization have explained macroeconomic volatility in 39 Sub-Saharan African (SSA) countries from 2000 to 2023, using the panel-corrected standard error (PCSE) and two-step system generalized method of moments (2SGMM) for econometric modeling. The empirical results show that macroeconomic volatility responds differently to overall, de facto, and de jure measures of financial globalization: the overall and de facto measures are positively associated with macroeconomic volatility, whereas the de jure indicator is negatively related to it. These findings provide strong evidence in support of the real business cycle theory but against the external capital theory. Additionally, the study demonstrates that fiscal balance, central government debt, population growth rate, changes in leading export commodity prices, and institutional quality are significantly associated with macroeconomic volatility in Sub-Saharan African countries. Resultantly, the study recommends that Sub-Saharan countries create the right conditions, such as strengthening governance architecture and deepening financial market liberalization, to ensure the volatility-reducing benefits of global financial integration are achieved and sustained in SSA countries.