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Financing Domestic Investment in African Countries: Does the Source of Financing Matter?

Author

Listed:
  • Leonce Ndikumana

    (Department of Economics and Political Economy Research Institute at the University of Massachusetts at Amherst)

  • Theresa Mannah-Blankson

    (Department of Economics at University of Massachusetts at Amherst, and Bank of Ghana)

Abstract

This paper aims to investigate the effects of various sources of financing on domestic investment in African countries. Domestic savings and credit to the private sector prove to be the most robust sources of financing for domestic investment. While foreign direct investment also has a positive effect on domestic investment, the magnitude is relatively smaller. Official development aid, public external debt and migrant remittances have no significant effect on domestic investment. The evidence in the study has a powerful policy implication: in their efforts to boost domestic investment, African countries are should primarily look inward. Improving the environment for financial intermediation and domestic savings mobilization appears to be a more promising route to finding a key to stimulating domestic investment than relying on imported investment capital.

Suggested Citation

  • Leonce Ndikumana & Theresa Mannah-Blankson, 2015. "Financing Domestic Investment in African Countries: Does the Source of Financing Matter?," Journal of African Development, African Finance and Economic Association (AFEA), vol. 17(2), pages 19-48.
    • Handle: RePEc:afe:journl:v:17:y:2015:i:2:p:19-48
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    Citations

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    Cited by:

    1. Asongu, Simplice, 2017. "Improving financial access in Africa: insights from information sharing and financial sector development," MPRA Paper 83071, University Library of Munich, Germany.
    2. Azmat Gani & Nisar Ahmad, 2020. "Has Economic Growth of China and India Impacted African Economic Prosperity?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 48(3), pages 375-385, September.
    3. C. Massidda & R. Piras, 2024. "Funding sources, colonial legacy, and new firms’ creation in Africa," Economic Change and Restructuring, Springer, vol. 57(5), pages 1-68, October.
    4. S K Gnangnon, 2024. "Effect of the DFQF Market Access Initiative on Domestic Investment in Least Developed Countries," Economic Issues Journal Articles, Economic Issues, vol. 29(1), pages 133-167, March.
    5. Simplice A. Asongu & Nicholas M. Odhiambo, 2018. "Information asymmetry, financialization, and financial access," International Finance, Wiley Blackwell, vol. 21(3), pages 297-315, December.
    6. Muhammad Azam & Yi Feng, 2022. "Does foreign aid stimulate economic growth in developing countries? Further evidence in both aggregate and disaggregated samples," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(2), pages 533-556, April.
    7. Asongu, Simplice A. & Nwachukwu, Jacinta C., 2017. "The synergy of financial sector development and information sharing in financial access: Propositions and empirical evidence," Research in International Business and Finance, Elsevier, vol. 40(C), pages 242-258.
    8. Dobdinga Cletus Fonchamnyo & Gildas Dohba Dinga & Vahsegmi Carolle Ngum, 2021. "Revisiting the nexus between domestic investment, foreign direct investment and external debt in SSA countries: PMG‐ARDL approach," African Development Review, African Development Bank, vol. 33(3), pages 479-491, September.
    9. Brian Muyambiri & Nicholas M. Odhiambo, 2018. "The Impact Of Financial Development On Investment: A Review Of International Literature," Organizations and Markets in Emerging Economies, Faculty of Economics, Vilnius University, vol. 9(2).
    10. Taofeek Olusola Ayinde & Olumuyiwa Ganiyu Yinusa & Yulia Rodionova, 2018. "Global and Regional Capital Mobilities in Sub-Saharan African Economies: Complement or Substitute?," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 68(4), pages 51-71, October-D.

    More about this item

    Keywords

    Africa; domestic investment; domestic savings; bank credit; official development aid; external debt; migrant remittances;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F35 - International Economics - - International Finance - - - Foreign Aid

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