This study examines the relationship between domestic savings and fixed capital formation in African economies, focusing on the moderating role of institutional quality. Using panel data for 45 African countries over the period 1996–2024, we estimate a fixed-effects model with Driscoll–Kraay standard errors to account for cross-sectional dependence and heteroskedasticity. The findings confirm a positive and significant relationship between domestic savings and investment, consistent with traditional growth theory. More importantly, the results reveal that institutional quality significantly enhances the effectiveness of savings in promoting fixed capital formation, with stronger governance frameworks improving the allocation of resources and limiting diversion into unproductive uses. Disaggregated results further show that the moderating effect varies across institutional dimensions and is more pronounced in middle-income countries, while remaining weak or insignificant in low-income economies. These findings highlight the conditional nature of the savings–investment nexus and underscore the importance of institutional development in translating domestic resources into productive investment in Africa.
Ayemele et al. (Sun,) studied this question.