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Financial Development and Investment in Botswana: A Multivariate Causality Test

Author

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  • Muyambiri Brian

    (University of South Africa, College of Economics and Management Sciences, Department of Economics, P.O Box 392, UNISA, 0003, Pretoria, South Africa; Botswana Open University, School of Business and Management Studies, Department of Business, P.Bag BO187, Bontleng, Gaborone, Botswana)

  • Odhiambo Nicholas M.

    (University of South Africa, College of Economics and Management Sciences, Department of Economics, P.O Box 392, UNISA, 0003, Pretoria, South Africa, nmbaya99@yahoo.com)

Abstract

This paper examines the causal relationship between financial development and investment in Botswana between 1976 and 2014. The autoregressive distributed-lag (ARDL) bounds testing approach and a trivariate Granger-causality model are employed. In order to capture the breadth and depth of the financial sector in the study country, both bank- and market-based financial development indices are used. The results show that there is a bidirectional Granger-causal relationship between both bank-based and market-based financial development and investment in the short run. In the long run, a distinct causal flow is found to prevail only from investment to bank-based financial development. Given the findings, the causal relationship between financial development and investment is not a given as implied in economic literature. For Botswana, policies that enhance both investment and market-based financial development should be employed in the short run.

Suggested Citation

  • Muyambiri Brian & Odhiambo Nicholas M., 2018. "Financial Development and Investment in Botswana: A Multivariate Causality Test," Folia Oeconomica Stetinensia, Sciendo, vol. 18(2), pages 72-89, December.
    • Handle: RePEc:vrs:foeste:v:18:y:2018:i:2:p:72-89:n:6
    DOI: 10.2478/foli-2018-0020
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    References listed on IDEAS

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    More about this item

    Keywords

    financial development; investment; trivariate granger causality; Botswana;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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