South Africa's financial development and its role in investment

Brian Muyambiri and Nicholas Odhiambo

No 22084, Working Papers from University of South Africa, Department of Economics

Abstract: This study investigates the impact of financial development on investment in SouthAfrica between 1976 and 2014. The model estimated is based on the flexibleaccelerator investment model. Composite indices for bank-based and market-basedfinancial development indicators are used as explanatory variables. The estimatedmodel postulates that both bank-based financial development and market-basedfinancial development have an accelerator-enhancing effect on investment. Resultsshow that market-based financial development has a positive impact on investment inthe long run, while bank-based financial development has a negative effect in theshort run. Implications are that, for South Africa, market-based financial developmenthas a positive accelerator-enhancing effect on investment in the long run. In contrast,bank-based financial development is found to have a negative accelerator enhancingeffect on investment in the short run.

Keywords: South Africa; Investment; Bank-based financial development; Marketbased financial development; flexible accelerator model (search for similar items in EconPapers)
Date: 2017-02
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Journal Article: South Africa’s Financial Development and its Role in Investment (2018)
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