Financial sector development and intra-African trade

• Relationship between Financial Sector Development (FSD) and intra-African trade. • Positive impact of financial development and cross-border banking flows on intra-African trade. • Financial institution indicators have more impact than financial market indicators. • The relationship between financial development and trade is heterogeneous across African regions. • Financial development affects trade indirectly through the services and industrial sectors. This paper examines the nature of the relationship between Financial Sector Development (FSD) and intra-African trade. Using a sample of African countries with available data from 1998 to 2021 , and robust estimation techniques that address endogeneity and omitted variables biases, we find a positive significant impact of the composite financial development indicator and cross-border banking flows on intra-African trade. Further analysis reveals that the effects of the financial institution sub-indicators are more pronounced than those of the financial market sub-indicators. The effects are also heterogeneous across the different African Regional Economic Communities (RECs). Finally, our results show that financial sector development affects intra-African trade indirectly through its impact on the services and industrial sectors.