Balancing the Financial Trilemma: The Role of Financial Integration and Financial Development in Achieving Sustainable Development in Sub‐Saharan Africa
Abstract
ABSTRACT The financial trilemma (FT) highlights the challenge of balancing financial integration, financial development, and financial stability. A practical assessment of the FT is crucial for evaluating the current state of Sub‐Saharan Africa's (SSA) financial landscape and making substantial progress toward Sustainable Development Goals (SDGs), particularly SDG 8 (Decent Work and Economic Growth) and SDG 10 (Reduced Inequality). Based on panel data from 1990 to 2021, this paper investigates the direct and indirect effects of financial integration and financial development on SSA's financial trilemma, employing robust second‐generation econometric techniques, including cross‐sectional dependence, slope homogeneity, panel unit root tests, the Westerlund cointegration, Augmented Mean Group method, and the Dumitrescu‐Hurlin causality test. The findings suggest that financial integration and development contribute to achieving financial transformation (FT) in the long run. However, the impact of institutional quality (IQ) and human development on the FT is both positive and negative, suggesting the need for enhanced governance structures and capacity‐building initiatives to support sustainable financial policies. The moderation analysis reveals that IQ and technological advancement (TEC) do not significantly influence the financial integration‐FT nexus. Institutional quality does not affect the financial development‐FT nexus; however, TEC has a positive impact on this relationship. Based on these findings, the study recommends that policymakers prioritize strengthening institutional frameworks, enhancing technology adoption, and promoting inclusive financial development to achieve sustainable progress in SSA's financial landscape.