IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v121y2023ics0264999323000421.html
   My bibliography  Save this article

Bond market development and infrastructure-gap reduction: The case of Sub-saharan Africa

Author

Listed:
  • Kodongo, Odongo
  • Mukoki, Paul
  • Ojah, Kalu

Abstract

Infrastructure development and it's financing have featured jointly in the economic development discourse. We consider the linkages between the two in the African context by examining the potential role of the region's fledgling bond markets in mobilizing resources to bridge its notorious infrastructure gap (IG). Applying a battery of econometric tests on 40 countries covering 2003–2018, we document robustly negative and nonlinear relationships between bond market development and IG (and, by extension, infrastructure financing deficit). Furthermore, these fledgling government and corporate bond markets play a complimentary role in financing vital infrastructures; with corporate bond markets interestingly eliciting greater reduction in IGs than government bond markets. In the future, African governments should implement policies that promote the development of both sovereign and corporate bond markets, with a strategic emphasis on quickly deepening corporate bond markets to facilitate more impactful financing of infrastructures.

Suggested Citation

  • Kodongo, Odongo & Mukoki, Paul & Ojah, Kalu, 2023. "Bond market development and infrastructure-gap reduction: The case of Sub-saharan Africa," Economic Modelling, Elsevier, vol. 121(C).
    • Handle: RePEc:eee:ecmode:v:121:y:2023:i:c:s0264999323000421
    DOI: 10.1016/j.econmod.2023.106230
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999323000421
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2023.106230?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Burger, John & Warnock, Francis & Warnock, Veronica Cacdac, 2015. "Bond Market Development in Developing Asia," ADB Economics Working Paper Series 448, Asian Development Bank.
    2. Caner, Mehmet & Hansen, Bruce E., 2004. "Instrumental Variable Estimation Of A Threshold Model," Econometric Theory, Cambridge University Press, vol. 20(5), pages 813-843, October.
    3. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    4. Wooldridge, Jeffrey M., 2019. "Correlated random effects models with unbalanced panels," Journal of Econometrics, Elsevier, vol. 211(1), pages 137-150.
    5. Fedderke, J.W. & Bogetic, Z., 2009. "Infrastructure and Growth in South Africa: Direct and Indirect Productivity Impacts of 19 Infrastructure Measures," World Development, Elsevier, vol. 37(9), pages 1522-1539, September.
    6. Mr. Yibin Mu & Mr. Peter Phelps & Ms. Janet Gale Stotsky, 2013. "Bond Markets in Africa," IMF Working Papers 2013/012, International Monetary Fund.
    7. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    8. Lika Ba, Farid Gasmi, and Paul Noumba Um, 2017. "The Relationship between Financial Development and Private Investment Commitments in Energy Projects," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 42(3), pages 17-40, September.
    9. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    10. Calderon,Cesar & Cantu Canales,Martha Catalina & Chuhan-Pole,Punam, 2018. "Infrastructure development in Sub-Saharan Africa : a scorecard," Policy Research Working Paper Series 8425, The World Bank.
    11. Dennis Essers & Hans J. Blommestein & Danny Cassimon & Perla Ibarlucea Flores, 2016. "Local Currency Bond Market Development in Sub-Saharan Africa: A Stock-Taking Exercise and Analysis of Key Drivers," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(5), pages 1167-1194, May.
    12. Philip Turner, 2002. "Bond markets in emerging economies: an overview of policy issues," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 1-12, Bank for International Settlements.
    13. Reinhard Schunck, 2013. "Within and between estimates in random-effects models: Advantages and drawbacks of correlated random effects and hybrid models," Stata Journal, StataCorp LP, vol. 13(1), pages 65-76, March.
    14. Cihak, Martin & Demirguc-Kunt, Asli & Feyen, Erik & Levine, Ross, 2012. "Benchmarking financial systems around the world," Policy Research Working Paper Series 6175, The World Bank.
    15. Hyun, Suk & Park, Donghyun & Tian, Shu, 2018. "Determinants of Public–Private Partnerships in Infrastructure in Asia: Implications for Capital Market Development," ADB Economics Working Paper Series 552, Asian Development Bank.
    16. Fabio Ghironi & Galip Kemal Ozhan, 2020. "Interest Rate Uncertainty as a Policy Tool," Staff Working Papers 20-13, Bank of Canada.
    17. Michael Regan, 2017. "Capital Markets, Infrastructure Investment and Growth in the Asia Pacific Region," IJFS, MDPI, vol. 5(1), pages 1-28, February.
    18. Antonio Estache & Jean-François Perrault & Luc Savard, 2008. "Impact Of Infrastructure Spending In Sub-Saharan Africa: A Cge Modeling Approach," Cahiers de recherche 08-03, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    19. Stephanie Kremer & Alexander Bick & Dieter Nautz, 2013. "Inflation and growth: new evidence from a dynamic panel threshold analysis," Empirical Economics, Springer, vol. 44(2), pages 861-878, April.
    20. Muhanji, Stella & Ojah, Kalu, 2016. "Governance infrastructure and indebtedness of African countries: Do regional blocs matter?," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 123-153.
    21. James L. Butkiewicz & Halit Yanikkaya, 2011. "Institutions and the impact of government spending on growth," Journal of Applied Economics, Universidad del CEMA, vol. 14, pages 319-341, November.
    22. Sin-Yu Ho, 2018. "Determinants of economic growth in Hong Kong: The role of stock market development," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1510718-151, January.
    23. Misati, Roseline Nyakerario & Nyamongo, Esman Morekwa, 2011. "Financial development and private investment in Sub-Saharan Africa," Journal of Economics and Business, Elsevier, vol. 63(2), pages 139-151.
    24. Federica Liberini, 2006. "Economic Growth and Infrastructure Gap in Latin America," Rivista di Politica Economica, SIPI Spa, vol. 96(6), pages 145-186, November-.
    25. Xu, Jiajun & Ru, Xinshun & Song, Pengcheng, 2021. "Can a new model of infrastructure financing mitigate credit rationing in poorly governed countries?," Economic Modelling, Elsevier, vol. 95(C), pages 111-120.
    26. Kalu Ojah & Odongo Kodongo, 2016. "Does Infrastructure Really Explain Economic Growth in Sub-Saharan Africa?," Working Papers 653, Economic Research Southern Africa.
    27. Germaschewski, Yin, 2020. "Stabilization policy, infrastructure investment, and welfare in a small open economy," Economic Modelling, Elsevier, vol. 84(C), pages 322-339.
    28. Rudra P. Pradhan & Mak B. Arvin & Sara E. Bennett & Mahendhiran Nair & John H. Hall, 2016. "Bond Market Development, Economic Growth and Other Macroeconomic Determinants: Panel VAR Evidence," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 23(2), pages 175-201, June.
    29. Machokoto, Michael & Areneke, Geofry & Ibrahim, Boulis Maher, 2020. "Rising corporate debt and value relevance of supply-side factors in South Africa," Journal of Business Research, Elsevier, vol. 109(C), pages 26-37.
    30. Calderon, Cesar & Serven, Luis, 2014. "Infrastructure, growth, and inequality : an overview," Policy Research Working Paper Series 7034, The World Bank.
    31. Suk Hyun & Donghyun Park & Shu Tian, 2020. "Infrastructure Bond Market Developments in Asia: Challenges and Solutions," World Scientific Book Chapters, in: Bambang Susantono & Donghyun Park & Shu Tian (ed.), INFRASTRUCTURE FINANCING IN ASIA, chapter 7, pages 183-207, World Scientific Publishing Co. Pte. Ltd..
    32. Zhang, Yin-Fang & Ji, Shengbao, 2018. "Does infrastructure have a transitory or longer-term impact? Evidence from China," Economic Modelling, Elsevier, vol. 73(C), pages 195-207.
    33. Suk Hyun & Donghyun Park & Shu Tian, 2018. "Determinants of Public–Private Partnerships in Infrastructure in Asia: Implications for Capital Market Development," Working Papers id:12887, eSocialSciences.
    34. Riju Joshi & Jeffrey M. Wooldridge, 2019. "Correlated Random Effects Models with Endogenous Explanatory Variables and Unbalanced Panels," Annals of Economics and Statistics, GENES, issue 134, pages 243-268.
    35. James Bond, 2016. "Infrastructure in Africa," Papers Presented at Global Meetings of the Emerging Markets Forum 2016africainf, Emerging Markets Forum.
    36. Vivien Foster & Cecilia Briceno-Garmendia, 2010. "Africa's Infrastructure : A Time for Transformation [Infrastructures africaines]," World Bank Publications - Books, The World Bank Group, number 2692.
    37. Sang H. Lee & John Levendis & Luis Gutierrez, 2012. "Telecommunications and economic growth: an empirical analysis of sub-Saharan Africa," Applied Economics, Taylor & Francis Journals, vol. 44(4), pages 461-469, February.
    38. Rusike, Tatonga Gardner & Alagidede, Imhotep Paul, 2021. "The impact of sovereign credit ratings on Eurobond yields: Evidence from Africa," Research in International Business and Finance, Elsevier, vol. 58(C).
    39. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2000. "A New Database on the Structure and Development of the Financial Sector," The World Bank Economic Review, World Bank, vol. 14(3), pages 597-605, September.
    40. Misati, Roseline Nyakerario & Nyamongo, Esman Morekwa, 2011. "Financial development and private investment in Sub-Saharan Africa," Journal of Economics and Business, Elsevier, vol. 63(2), pages 139-151, March.
    41. Kalu Ojah & Stella Muhanji & Odongo Kodongo, 2022. "Infrastructure threshold and economic growth in Africa: do income level and geography matter?," Economic Change and Restructuring, Springer, vol. 55(3), pages 1587-1627, August.
    42. Hickey, Rónán & Lozej, Matija & Smyth, Diarmaid, 2020. "Financing government investment and its implications for public capital: A small open economy perspective," Economic Modelling, Elsevier, vol. 93(C), pages 620-641.
    43. Berrone, Pascual & Fageda, Xavier & Llumà, Carmina & Ricart, Joan Enric & Rodríguez, Miquel & Salvador, Jordi & Trillas, Francesc, . "Public-Private Partnership in Latin America: A Guide for Regional and Local Governments," Books, CAF Development Bank Of Latinamerica, number 1220.
    44. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    45. Arsène Aurelien Njamen Kengdo & Tii N. Nchofoung & Philemon Bonaventure Ntang, 2020. "Effect of external debt on the level of infrastructure in Africa," Economics Bulletin, AccessEcon, vol. 40(4), pages 3349-3366.
    46. Calderon, Cesar & Serven, Luis, 2010. "Infrastructure in Latin America," Policy Research Working Paper Series 5317, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wolde-Rufael, Yemane & Mulat-Weldemeskel, Eyob, 2023. "Is natural capital a blessing or a curse for capital accumulation in low income countries?," Resources Policy, Elsevier, vol. 85(PA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Combes, Jean-Louis & Minea, Alexandru & Sawadogo, Pegdéwendé Nestor, 2021. "Does the composition of government spending matter for government bond spreads?," Economic Modelling, Elsevier, vol. 96(C), pages 409-420.
    2. Chung‐Hua Shen & Hsing‐Hua Hsu, 2022. "The determinants of Asian banking crises—Application of the panel threshold logit model," International Review of Finance, International Review of Finance Ltd., vol. 22(1), pages 248-277, March.
    3. Aizenman, Joshua & Ho, Sy-Hoa & Huynh, Luu Duc Toan & Saadaoui, Jamel & Uddin, Gazi Salah, 2024. "Real exchange rate and international reserves in the era of financial integration," Journal of International Money and Finance, Elsevier, vol. 141(C).
    4. Anachit Bagntasarian & Emmanuel Mamatzakis, 2019. "Testing for the underlying dynamics of bank capital buffer and performance nexus," Review of Quantitative Finance and Accounting, Springer, vol. 52(2), pages 347-380, February.
    5. Khan, Umair & Khalid, Umair & Farooq, Fatima, 2021. "Endogeneity Quagmire Empirical Evidence from Telecommunication Industry of Pakistan," Journal of Accounting and Finance in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 7(4), pages 955-967, December.
    6. Celil AYDIN, 2017. "The Inflation-Growth Nexus: A Dynamic Panel Threshold Analysis For D-8 Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 134-151, December.
    7. Mamatzakis, Emmanuel & Bermpei, Theodora, 2014. "What drives investment bank performance? The role of risk, liquidity and fees prior to and during the crisis," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 102-117.
    8. Emmanuel Mamatzakis & Theodora Bermpei, 2015. "The Effect of Corporate Governance on the Performance of US Investment Banks," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 24(2-3), pages 191-239, May.
    9. Antonella Francesca Cicchiello & Serena Gallo & Stefano Monferrà, 2023. "Financing the cultural and creative industries through crowdfunding: the role of national cultural dimensions and policies," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 47(1), pages 133-175, March.
    10. Mamatzakis, Emmanuel & Bermpei, Theodora, 2016. "What is the effect of unconventional monetary policy on bank performance?," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 239-263.
    11. Gebauer, Stefan & Setzer, Ralph & Westphal, Andreas, 2017. "Corporate debt and investment: a firm analysis for stressed euro area countries," Working Paper Series 2101, European Central Bank.
    12. Qusai Mohammad Qasim Alabed & Fathin Faizah Said & Zulkefly Abdul Karim & Mohd Azlan Shah Zaidi & Mohammed Daher Alshammary, 2021. "Energy–Growth Nexus in the MENA Region: A Dynamic Panel Threshold Estimation," Sustainability, MDPI, vol. 13(22), pages 1-18, November.
    13. Witness Nyasha Bandura & Temitope L. A. Leshoro, 2022. "Inflation And Financial Development In Sub-Saharan Africa," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 67(233), pages 85-112, April – J.
    14. Osei, Michael J. & Kim, Jaebeom, 2020. "Foreign direct investment and economic growth: Is more financial development better?," Economic Modelling, Elsevier, vol. 93(C), pages 154-161.
    15. Gebauer, Stefan & Setzer, Ralph & Westphal, Andreas, 2018. "Corporate debt and investment: A firm-level analysis for stressed euro area countries," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 112-130.
    16. Mamatzakis, Emmanuel & Bagntasarian, Anna, 2019. "The nexus between underlying dynamics of bank capital buffer and performance," MPRA Paper 92961, University Library of Munich, Germany.
    17. Law, Siong Hook & Singh, Nirvikar, 2014. "Does too much finance harm economic growth?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 36-44.
    18. Meytang Cédric & Ongo Nkoa Bruno Emmanuel, 2024. "Infrastructure development in sub-Saharan African countries: does insurance matter?," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 49(4), pages 747-778, October.
    19. Jamel Boukhatem, 2021. "What drives local currency bond market development in Saudi Arabia: do macroeconomic and institutional factors matter?," Future Business Journal, Springer, vol. 7(1), pages 1-18, December.
    20. Baharumshah, Ahmad Zubaidi & Slesman, Ly & Wohar, Mark E., 2016. "Inflation, inflation uncertainty, and economic growth in emerging and developing countries: Panel data evidence," Economic Systems, Elsevier, vol. 40(4), pages 638-657.

    More about this item

    Keywords

    Public debt markets; Infrastructure gaps; Infrastructure financing; Sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:121:y:2023:i:c:s0264999323000421. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.