In this report for the UNDP, we assess the extent of financialization in Africa. The financialization hypothesis suggests that the development of a country's financial sector is beneficial to economic development only up until a certain point, after which the financial sector crowds out real economic activity. Thus, large financial sectors in can prevent developing countries from reaching growth goals, such as increasing labor participation and decreasing inequality. This hypothesis has been empirically proven, but only for certain already developed countries.

Our project constructed new financialization indicators by measuring the amount of value added by the financial sector. Our metric includes relatively rich time series for many countries in Africa and is usable for both descriptive and regression analysis. We found evidence of financialization in four out of five regions in Africa We also found that, among high income nations in Africa, financialization is generally positively associated with GDP per capita, but has a u-shaped relationship with unemployment. Financialization thus helps contribute to some facets of development, while impeding others.