Financial development,savings and investment in South Africa: A dynamic causality test

Brian Muyambiri and Nicholas Odhiambo

No 22657, Working Papers from University of South Africa, Department of Economics

Abstract: This study investigates the causal relationship between financial development andinvestment in South Africa during the period from 1976 to 2014. The studyincorporates both bank-based and market-based segments of financial sectordevelopment. In addition, composite indices for bank-based and market-basedfinancial development indicators are used as explanatory variables. The studyincorporates savings as an intermittent variable ? thereby creating a simple trivariateGranger-causality model. Using the ARDL bounds testing approach to cointegrationand the ECM-based Granger-causality test, the study finds a unidirectional causalflow from investment to financial development, but only in the short run. In the longrun, the study fails to find any causal relationship between financial development andinvestment. These results apply irrespective of whether bank-based or market-basedfinancial development is used as a proxy for financial sector development. Thefindings of this study have important policy implications.

Keywords: South Africa; Investment; Bank-based financial development; Market-based financial development; Trivariate Granger-causality (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-fdg
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Financial Development, Savings and Investment in South Africa: A Dynamic Causality Test (2017)
Journal Article: Financial Development, Savings and Investment in South Africa: A Dynamic Causality Test (2017)
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