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Exploring the causal relationships and allocation puzzle between portfolio investments and real sector growth in Sub-Saharan Africa

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  • Asamoah, Michael Effah
  • Alagidede, Imhotep Paul

Abstract

This study explores the causal dynamics and allocation puzzles between real sector growth and portfolio investments (equity and private debt) in Sub Saharan (SSA). We use growth in manufacturing, industry, agriculture, and services to capture the real sector and employ the two-step dynamic systems GMM model to establish our empirical relationships over the period 1980–2017. We found no evidence in support of the puzzle at the overall level of the real sector and portfolio investments. However, at a decomposed level, we established a bi-directional relationship of a positive association between debt flows and growth in agriculture and services, with no evidence of an allocation puzzle. Though we found a bi-directional association between debt and industrial growth, the association was detrimental in both directions. Finally, the study established a two-way inverse causality between equity flows and manufacturing growth. The paper provides a strong foundation for an additional source of financing, especially for the growth of the service and agriculture sectors. The findings also indicate complementary reactions between real sector growth and portfolio investments in SSA.

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  • Asamoah, Michael Effah & Alagidede, Imhotep Paul, 2020. "Exploring the causal relationships and allocation puzzle between portfolio investments and real sector growth in Sub-Saharan Africa," Research in International Business and Finance, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:riibaf:v:52:y:2020:i:c:s027553191930426x
    DOI: 10.1016/j.ribaf.2020.101187
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    Cited by:

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    2. Michael Effah Asamoah & Imhotep Paul Alagidede & Frank Adu, 2021. "Private Capital Flows, Real Sector Growth and Institutional Quality in Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 33(1), pages 171-207, January.
    3. Asamoah, Michael Effah & Alagidede, Imhotep Paul & Adu, Frank, 2021. "Financial development, portfolio investments and the real economy in Africa," Economic Systems, Elsevier, vol. 45(4).
    4. Lusungu, Luka & Chisasa, Joseph, 2023. "Nexus Between Investment and Agricultural Growth in The Democratic Republic of Congo: Cointegration, Short-Run Dynamics and Causality," Journal of Agribusiness and Rural Development, University of Life Sciences, Poznan, Poland, vol. 68(2).
    5. Michael Effah Asamoah & Imhotep Paul Alagidede & Frank Adu, 2022. "On the allocation puzzle and capital flows: Evidence from foreign direct investment and real sector growth in Africa," African Development Review, African Development Bank, vol. 34(3), pages 370-380, September.

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