Political stability, financial development, and economic advancement: a comparative analysis of South Africa and Nigeria

Abstract

Political stability in a nation fosters a business-friendly environment for both domestic and foreign investment, improves policy execution, and boosts financial sector performance. The amount of political stability and financial growth in different nations varies, which explains why the level of economic development is uneven in most countries, yet prior studies on the topic have drawn conflicting conclusions. This study investigated the relationship between South Africa and Nigeria's political stability, financial development, and economic growth from 1996 to 2020. The World Bank's WDI, WGI, and the Central Bank of Nigeria‘s (CBN) statistical bulletins were used to extract annual time series data. The data was then analysed using the Vector Autoregression Model, and the Granger causality test. The outcome demonstrated that financial development is the primary factor driving economic growth in Nigeria, whereas in South Africa, both financial and political stability contribute to economic growth. Additionally, while both financial and economic development have a generally favourable impact on political stability in South Africa, they both have a depressing impact on it there. Additionally, economic growth in Nigeria favourably affects financial development, but during the study period, political stability and economic growth in South Africa increased the efficiency of the financial system there. The study recommended that both countries should resist any form of political interference, such as coups d‘état (especially in Nigeria), that can retard the economic advancement of African countries.