Linkages between investment flows and financial development: causality evidence from selected African countries

Simplice Asongu

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: Financial development; Investment; Causality; Africa (search for similar items in EconPapers)
JEL-codes: C40 C50 F21 O10 O55 (search for similar items in EconPapers)
Date: 2012-05-10
New Economics Papers: this item is included in nep-afr and nep-dev
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Linkages between Investment Flows and Financial Development: Causality Evidence from Selected African Countries (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:38719

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