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Developing local currency bond markets for long-term development financing in Sub-Saharan Africa

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  • Kathrin Berensmann
  • Florence Dafe
  • Ulrich Volz

Abstract

This article discusses the role that local currency bond markets (LCBMs) can play in the long-term financing of sustainable development of Sub-Saharan African (SSA) economies, and presents an empirical analysis of the factors which may hinder or promote the development of such markets in SSA. Using a new dataset for 27 SSA countries, our findings support earlier research on SSA and other regions, showing that LCBM development is related to country size, larger banking systems, greater trade openness, and better regulatory frameworks and rule of law. Foreign investor participation broadens the investor base and can give a boost to LCBM development, yet it may also increase volatility of international capital flows. Hence, with a view to the experience of emerging economies in other regions, capital market liberalization should be pursued only very cautiously and in step with solid financial and institutional development.

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  • Kathrin Berensmann & Florence Dafe & Ulrich Volz, 2015. "Developing local currency bond markets for long-term development financing in Sub-Saharan Africa," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 31(3-4), pages 350-378.
    • Handle: RePEc:oup:oxford:v:31:y:2015:i:3-4:p:350-378.
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    File URL: http://hdl.handle.net/10.1093/oxrep/grv032
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    Cited by:

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    2. Belke, Ansgar & Volz, Ulrich, 2018. "Capital flows to emerging market and developing economies: global liquidity and uncertainty versus country-specific pull factors," IDOS Discussion Papers 23/2018, German Institute of Development and Sustainability (IDOS).
    3. Florence Dafe & Dennis Essers & Ulrich Volz, 2018. "Localising sovereign debt: The rise of local currency bond markets in sub‐Saharan Africa," The World Economy, Wiley Blackwell, vol. 41(12), pages 3317-3344, December.
    4. Christian Senga & Danny Cassimon & Dennis Essers, 2018. "Sub-Saharan African Eurobond yields: What really matters beyond global factors?," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 8(1), pages 49-62.
    5. Pedersoli, Silvia & Presbitero, Andrea F., 2023. "Public debt management and private financial development," Economic Systems, Elsevier, vol. 47(1).
    6. Lang, Valentin F. & Presbitero, Andrea F., 2018. "Room for discretion? Biased decision-making in international financial institutions," Journal of Development Economics, Elsevier, vol. 130(C), pages 1-16.
    7. Thiele, Rainer & Köster, Maximilian & Okoli, Ikechukwu & Rühmann, Friederike, 2018. "African economic development: what role can the G20 Compact play?," IDOS Discussion Papers 3/2018, German Institute of Development and Sustainability (IDOS).
    8. Endo, Tadashi, 2020. "The primary dealer system in lower-income economies," Emerging Markets Review, Elsevier, vol. 45(C).
    9. Berensmann, Kathrin & Dafe, Florence & Lindenberg, Nannette & Volz, Ulrich, 2015. "Financing global development: The role of local currency bond markets in Sub-Saharan Africa," Briefing Papers 11/2015, German Institute of Development and Sustainability (IDOS).
    10. Endo, Tadashi, 2022. "Endogenous market development for government securities in lower-income economies," Emerging Markets Review, Elsevier, vol. 50(C).
    11. Isaac Abotebuno Akolgo, 2023. "Ghana's Debt Crisis and the Political Economy of Financial Dependence in Africa: History Repeating Itself?," Development and Change, International Institute of Social Studies, vol. 54(5), pages 1264-1295, September.
    12. Yushi Chen & Ulrich Volz, 2022. "Scaling up sustainable investment through blockchain‐based project bonds," Development Policy Review, Overseas Development Institute, vol. 40(3), May.
    13. Dafe, Florence & Upadhyaya, Radha & Sommer, Christoph, 2021. "Employing capital: Patient capital and labour relations in Kenya's manufacturing sector," IDOS Discussion Papers 18/2021, German Institute of Development and Sustainability (IDOS).
    14. Altenburg, Tilman, 2017. "Arbeitsplatzoffensive für Afrika," IDOS Discussion Papers 23/2017, German Institute of Development and Sustainability (IDOS).
    15. Berensmann, Kathrin & Dafe, Florence & Lindenberg, Nannette & Volz, Ulrich, 2015. "Finanzierung globaler Entwicklung: Die Rolle der Märkte für Lokalwährungsanleihen in Subsahara-Afrika," Analysen und Stellungnahmen 5/2015, German Institute of Development and Sustainability (IDOS).
    16. Fløgstad, Cathrin, 2017. "Domestic bond markets in emerging economies: Crowding in or crowding out?," Working Papers in Economics 15/17, University of Bergen, Department of Economics.
    17. Michael Bradley & Elisabeth de Fontenay & Irving Arturo de Lira Salvatierra & Mitu Gulati, 2018. "Pricing Sovereign Debt: Foreign versus Local Parameters," European Financial Management, European Financial Management Association, vol. 24(2), pages 261-297, March.

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