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More Finance or Better Finance in Feldstein–Horioka Puzzle: Evidence from SSA Countries

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  • Ibrahim Dolapo Raheem

Abstract

This study examined the role of financial development in the Feldstein–Horioka (FH) puzzle for 31 sub-Saharan African (SSA) countries for the period 1999–2011. Unlike previous studies that used traditional measures of finance (‘more finance’), we advocated for superior measures of financial development (‘better finance’). The baseline regression shows that ‘more finance’ increases the FH estimate, while ‘better finance’ serves as drag to the same retention coefficients. The reverse of these results was obtained when the baseline regression was extended to account for the interaction between savings and proxies for finance. The results obtained show a considerable improvement in the saving retention coefficient when ‘better finance’ was used as against ‘more finance’. This concretely reinforces the superior role of ‘better finance’ in mobilizing, distributing and utilizing savings for investment within these economies. Based on these findings, domestic resource mobilization can be a veritable vehicle for plugging the substantial investment gap in these SSA economies. However, such policy thrust must be complemented by far-reaching financial reforms.

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  • Ibrahim Dolapo Raheem, 2017. "More Finance or Better Finance in Feldstein–Horioka Puzzle: Evidence from SSA Countries," Global Business Review, International Management Institute, vol. 18(1), pages 132-143, February.
    • Handle: RePEc:sae:globus:v:18:y:2017:i:1:p:132-143
    DOI: 10.1177/0972150916666912
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    4. Naib ALAKBAROV & Yılmaz BAYAR, 2021. "International Financial Market Integration and The Feldstein–Horioka Puzzle: Evidence from Emerging Market Economies," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 143-165, December.
    5. Vasudeva N.R. Murthy & Natalya Ketenci, 2021. "The Feldstein–Horioka hypothesis for African countries: Evidence from recent panel error‐correction modelling," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5762-5774, October.
    6. Saqib Mehmood & Ahmad Raza Bilal, 2024. "Investigation for Finance–Growth Nexus: A Dynamic Common Correlated Estimator Approach," Global Business Review, International Management Institute, vol. 25(6), pages 1525-1539, December.
    7. Sin-Yu Ho & Bernard Njindan Iyke, 2020. "The Determinants of Economic Growth in Ghana: New Empirical Evidence," Global Business Review, International Management Institute, vol. 21(3), pages 626-644, June.

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