Simplice A, Asongu (2012): Linkages between investment flows and financial development: causality evidence from selected African countries.
Download (240kB) | Preview
This paper introduces previously missing financial components(efficiency, activity and size) in the assessment of the finance-investment nexus. Using VAR models in the perspectives of VECM and short-run Granger causality, three broad findings are established: (1) while finance led investment elasticities are positive, investment elasticities of finance are negative; (2)but for Guinea Bissau, Mozambique and Togo, finance does not seem to engender portfolio investment; (3)contrary to mainstream literature, financial efficiency appears to impact investment more than financial depth. Four policy implications result: (1)extreme caution is needed in the use of single equation analysis for economic forecasts; (2)financial development leads more to investment flows than the other way round; (3) financial allocation efficiency is more relevant as means to attracting investment flows than financial depth; (4) the somewhat heterogeneous character of the findings also point to shortcomings in blanket policies that are not contingent on country-specific trends in the finance-investment nexus.
|Item Type:||MPRA Paper|
|Original Title:||Linkages between investment flows and financial development: causality evidence from selected African countries|
|Keywords:||Financial development; Investment; Causality; Africa|
|Subjects:||O - Economic Development, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O10 - General
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General
C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C40 - General
F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment; Long-Term Capital Movements
|Depositing User:||Simplice Anutechia Asongu|
|Date Deposited:||10. May 2012 12:50|
|Last Modified:||13. Feb 2013 07:33|
Afangideh, U. J., (2010). “Financial development and agricultural investment in Nigeria : historical simulation approach, Journal of Economic and Monetary Integration,9(1),pp.74-91.
Agbetsiafa, D.K., (2003). “The finance growth nexus: evidence from sub-Saharan Africa”, International Advances in Economic Research, 9 (2).
Ahking, F. W., (2001). Book Review: Measuring Business Cycles in Economic Time Series, Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 36(1), pp. 304-306.
Akaike, H., (1973). Information Theory and an extension of the Maximum Likelihood Principle. In: B.N. Petrov and F. Csaki, eds. Second International Symposium on Information Theory. Budapest: Akademiai Kiado, pp.267-281.
Akinboade, O.A., (1998). “Financial development and economic growth in Botswana: a test for causality”, Savings and Development, 22 (3),pp.331–348.
Al-Yousif, Y.K., (2002). “Financial development and economic growth: another look at the evidence from developing countries”, Review of Financial Economics,11, pp.131–150.
Ang, B.J., (2009). “Private investment and financial sector policies in India and Malaysia”, World Development, 37(7),pp.1261-1273.
Asongu, S. A., (2011a). “Law, finance, economic growth and welfare: why does legal origin matter?”, MPRA Paper No. 33868.
Asongu, S. A., (2011b), “Law and finance in Africa”, MPRA Paper No. 34080.
Asongu, S. A., (2011c), “Finance and democracy in Africa”, MPRA Paper No. 35500.
Asongu, S. A.,(2012), “Are financial benefits of financial globalization questionable until greater domestic financial development has taken place?”, MPRA Paper No.37631.
Calderon, C., & Liu, L., (2003). “The direction of causality between financial development and economic growth”, Journal of Development Economics, 72,pp.321-334.
Cheung, Y. W., & Lai, K., (1993). “A fractional cointegration analysis of purchasing power parity”, Journal of Business and Economics Statistics, 11, pp.103-112.
Choi, I. & Chung, B., (1995). “Sampling frequency and the power of tests for a unit root: a simulation study”, Economics Letters, 49, pp.131-136.
Christopoulos, D., K. & Tsionas, E., G.,(2004). “Financial development and economic growth:evidence from panel unit root and cointegration tests”, Journal of Development Economics, 73,pp.55-74.
Darrat, A.F., (1999). “Are financial deepening and economic growth causally related? Another look at the evidence”, International Economic Journal, 13 (3), pp.19–35.
De Ahmed, S.M., & Ansari, M. I., (1998). “Financial sector development and economic growth: the South Asian experience”, Journal of Asian Economics, 9(3), pp.503-517.
Demetriades, P., & Hussein, K., (1996). “Does financial development cause economic growth? Time series evidence from 16 countries”, Journal of Development Economics, 51,pp. 341–387.
Engle, R.F., & Granger, C..W.J.,(1987), “Co-integration and Error Correction: Representation, Estimation and Testing”, Econometrica, 55,(2), pp.251-276.
Forbes, K.J.,(2010). “Why do foreigners invest in the United States?”, Journal of International Economics, 80, pp.3-21.
Forssbaeck, J., & Oxelheim, L.,(2008). “Finance-specific factors as drivers of cross-border investment”, International Business Review, 17, pp.630-641.
Ghali, K.H., (1999). “Financial development and economic growth: the Tunisian experience”, Review of Development Economics, 3 (3), pp.310–322.
Gries, T., Kraft, M., & Meierrieks, D., (2009). “Linkages between financial deepening, trade openness, and economic development: causality evidence from Sub-Saharan Africa”, World Development, 37(12), pp. 1849-1860.
Habibullah, M. S., & End, Y.,(2006). “Does financial development cause economic growth? A panel data dynamic analysis for Asian developing countries”, Journal of the Asian Pacific Economy, 11(4),pp.377-393.
Hansen, H. & K. Juselius, (1995). Manual of CATS in RATS, Estima.
Henry, P.B.,(2007), “Capital Account Liberalization: Theory, Evidence and Speculation”, Journal of Economic Literature, XLV:887-935.
Huang, Y., (2006, July). “Private investment and financial development in a globalised world. Department of Economics”, University of Bristol, Discussion Paper No. 06/589.
Jalilian, H., & , Kirkpatrick, C., (2002). “Financial development and poverty reduction in developing countries”, International Journal of Finance and Economics, 7 (2), pp. 97–108.
Johansen, S., (1995a). “Identifying restrictions in linear equations: with applications to simultaneous equations and cointegration”, Journal of Econometrics, 69, pp.111-132.
Johansen, S.,(1995b). Likelihood based inference in cointegrated Vector Autoregressive Models. Oxford, Oxford University Press.
Jung, W. S., (1986). “Financial development and economic growth: international evidence”, Economic Development and Cultural Change, 34,pp. 333–346
King, R. G., & Levine, R., (1993). “Finance and growth: Schumpeter might be right”, Quarterly Journal of Economics, 108(3),pp.713-737.
Kose, M.A., Prasad, E. S., & Taylor, A.D.,(2011), “Threshold in the process of international financial integration”, Journal of International Money and Finance, 30(1), pp.147-179.
Landon, S., & Smith, C. E.,(2009). “Investment and the exchange: Short run and long run aggregate and sector-level estimates”, Journal of International Money and Finance, 28,pp.813-835.
Lee, C., & Chang, C., (2009). “FDI, financial development and economic growth: international evidence”, Journal of Applied Economics, 7(2),pp.249-271.
Liew, V.K (2004). “Which lag selection criteria should we employ?”, Economics Bulletin, 3(33), pp.1-9.
Love, I., & Zicchino, L., (2006). “Financial development and dynamic investment behavior: Evidence from Panel VAR”, The Quarterly Journal Review of Economics and Finance, 46, pp.190-210.
Luintel, R., & Khan, M., (1999). “A quantitative re-assessment of the finance-growth nexus: evidence from a multivariate VAR”, Journal of Development Economics, 60,pp. 381–405.
Luiz, J. M., & Charalambous, H., (2009). “Factors influencing foreign direct investment of South African financial services firms in sub-Saharan Africa”, International Business Review, 18,pp.305-317.
McKinnon, R.,(1973). Money and Capital in Economic Development. The Booking’s Institution: Washington.
Misati, R., & Nyamongo, E. M.,(2010). “Financial development and private investment in sub-Saharan Africa”, Journal of Economics and Business, 63, pp.139-151.
Newey, W.K., & West, K.D., (1994). “Automatic Lag Selection in Covariance Matrix Estimation”, Review of Economic Studies, 61,pp. 631-653.
Ndikumana, L., (2000). “Financial determinants of domestic investment in sub-Saharan Africa: evidence from panel data”, World Development, 28(2), pp. 381-400.
Ndikumana, L., (2005). “Financial development, financial structure, and domestic investment: International evidence”, Journal of International Money and Finance, 24,pp.651-673.
Odhiambo, N.M., (2004). “Is financial development still a spur to economic growth? A causal evidence from South Africa”, Savings and Development, 28 (1), pp. 47–62.
Odhiambo, N.M., (2005). “Financial development and economic growth in Tanzania: a dynamic causality tests”, African Finance Journal, 7 (1),pp. 1–17.
Odhiambo, N. M., (2008). “Financial depth, savings and economic growth in Kenya: A dynamic causal linkage”, Economic Modeling, 25,pp.704-713.
Phillips, P., (1988).“Trends & Random Walks In Macroeconomic Time Series”, Journal of Economic Dynamics and Control, 12, pp. 297 332.
Rousseau, P. L.,(1999). “Finance, investment and growth in Meiji-era Japan”, Japan and the World Economy, 11, pp.185-198.
Rousseau, P.L., & Vuthipadadorn, D., (2005). “Finance, investment and growth: time series evidence from 10 Asian economies”, Journal of Macroeconomics, 27,pp.87-106.
Shaw, E. S.(1973). Financial Deepening in Economic Development. Oxford University Press.
Stock, J. H., & M.W., Watson, (1988). “Testing for common trends”, Journal of the American Statistical Association, 83,pp.1097-1107.
Xu, Z., (2000). “Financial development, investment and economic growth”. Economic Inquiry, 38 (2), pp.331–344.