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South Africa's financial development and its role in investment

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  • Muyambiri, Brian
  • Odhiambo, Nicholas Mbaya

Abstract

This study investigates the impact of financial development on investment in SouthAfrica between 1976 and 2014. The model estimated is based on the flexibleaccelerator investment model. Composite indices for bank-based and market-basedfinancial development indicators are used as explanatory variables. The estimatedmodel postulates that both bank-based financial development and market-basedfinancial development have an accelerator-enhancing effect on investment. Resultsshow that market-based financial development has a positive impact on investment inthe long run, while bank-based financial development has a negative effect in theshort run. Implications are that, for South Africa, market-based financial developmenthas a positive accelerator-enhancing effect on investment in the long run. In contrast,bank-based financial development is found to have a negative accelerator enhancingeffect on investment in the short run.

Suggested Citation

  • Muyambiri, Brian & Odhiambo, Nicholas Mbaya, 2017. "South Africa's financial development and its role in investment," Working Papers 22084, University of South Africa, Department of Economics.
    • Handle: RePEc:uza:wpaper:22084
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    Cited by:

    1. Palesa Milliscent Lefatsa & Kin Sibanda & Rufaro Garidzirai, 2021. "The Relationship between Financial Development and Energy Consumption in South Africa," Economies, MDPI, vol. 9(4), pages 1-21, October.
    2. Adedoyin, Festus Fatai & Bekun, Festus Victor & Hossain, Md. Emran & Ofori, Elvis kwame & Gyamfi, Bright Akwasi & Haseki, Murat Ismet, 2023. "Glasgow climate change conference (COP26) and its implications in sub-Sahara Africa economies," Renewable Energy, Elsevier, vol. 206(C), pages 214-222.
    3. Mukhtarov, Shahriyar & Yüksel, Serhat & Dinçer, Hasan, 2022. "The impact of financial development on renewable energy consumption: Evidence from Turkey," Renewable Energy, Elsevier, vol. 187(C), pages 169-176.
    4. Shravani ‎ & Supran Kumar Sharma, 2020. "Financial Development and Economic Growth in Selected Asian Economies: A Dynamic Panel ARDL Test," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 14(2), June.
    5. Joel Hinaunye Eita & Victoria Manuel & Erwin Naimhwaka & Florette Nakusera, 2021. "The Impact of Fiscal Deficit on Inflation in Namibia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(1), pages 141-164.

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    More about this item

    Keywords

    South Africa; Investment; Bank-based financial development; Marketbased financial development; flexible accelerator model;
    All these keywords.

    JEL classification:

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

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