Natural Disasters, Financial Development and Inclusive Growth in Sub-Saharan Africa: The Role of Stage of Development

Abstract

Natural disasters, an act of God, constitute major socioeconomic threats that require an in-depth understanding, particularly in Sub-Saharan Africa, where their frequency and severity have risen. Hence, this study examines the effects of the most prevalent natural disasters, floods, droughts and storms, on financial development and inclusive growth in SSA. Also, it analyses the moderating of the stage of development on these relationships. The five sets objectives. Firstly, to investigate the effect of natural disasters on financial institutions, financial markets and overall financial development. Secondly, to assess the moderating role of the stage of development on the relationship between natural disasters and financial development. Thirdly, to examine the effects of natural disasters on inclusive growth. Fourthly, assess the moderating role of the stage of development on the relationship between natural disasters and inclusive growth. Fifthly, to explore whether a threshold effect exists between financial development and inclusive growth. Using the Generalized Method of Moment technique, data on 35 countries from 1990-2019 was analyzed. The findings reveal that natural disasters negatively affect financial development and inclusive growth. Also, the stage of development significantly moderates these relationships for most models. Further, no threshold effect was established between financial development and inclusive growth. The study recommends that the financial sector regulators integrate natural disaster risk assessment to boost the resilience of the sector. Also, initiatives to drive inclusive growth should account for natural disaster-related vulnerabilities. Besides, the stage of development should be considered in any policy that aims at mitigating the impacts of natural disasters.