@workingpaper{Asongu2012bl,
title = {Linkages between Investment Flows and Financial Development: Causality Evidence from Selected African Countries},
author = {Simplice A Asongu},
editor = {African 2012 Governance and Development Institute WP/12/029},
url = {http://www.afridev.org/RePEc/agd/agd-wpaper/Linkages-between-Investment-Flows-and-Financial-development.pdf},
year = {2012},
date = {2012-06-01},
abstract = {Purpose - This paper introduces previously missing financial components(efficiency, activity
and size) in the assessment of the finance-investment nexus.
Design/methodology/approach - VAR models in the perspectives of VECM and short-run
Granger causality are employed. Usage of optimally specified econometric methods in
contradiction to purely discretionary model specifications in mainstream literature.
Findings - Three main 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.
Practical implications - 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.
Originality/value - (1) Contrary to the mainstream approach we use four measures of
financial intermediary development(depth, efficiency, activity and size) as well as four types
of investment flows(domestic, foreign, portfolio and total). (2) The chosen investment and
financial indicators are derived upon preliminary correlation analysis from the broadest
macroeconomic dataset available on investment and financial intermediary flows.},
keywords = {Financial development; Investment; Causality; Africa},
pubstate = {published},
tppubtype = {workingpaper}
}