FINANCIAL DEVELOPMENT, GOVERNMENT FUNDING AND INFRASTRUCTURAL DEVELOPMENT IN SOUTH AFRICA

Abstract

The purpose of this paper is to identify the driving elements of the South African financial sector. While South Africa’s financial sector appears robust, there exists a dearth of empirical research investigating the determinants of its development. Thus, this work assesses how two critical factors: Infrastructure development, and government funding levels affect financial development (FD) in South Africa using annual data from 1990 to 2024. Preliminary findings show that the series are integrated, and they are cointegrated. Results from regression analysis suggest that the government funding exerts a positive and statistically significant influence on financial development across most indicators. Conversely, advanced infrastructure development, government funding and openness to trade are associated with a more developed financial sector. The implications of these findings are essential for policymakers and stakeholders in understanding the factors that drive financial development in South Africa. The study recommends that, among others, policymakers should prioritize investments in both physical and digital infrastructure, particularly in telecommunications.