The Relationship between Capital Market Development and Inflow of Foreign Direct Investment in Africa - a VECM- conditioned Impulse.

Abstract

The relationship between capital market development and inflow of FDI is well documented in literature. Documented evidence from Europe and American capital markets has been in affirmation of this thesis. However, a few similar studies conducted in Africa are largely country-specific and others marginalise various measurable indicators of capital markets. Using data generated through the World Bank databases for the six largest (and oldest) capital markets in Africa in a series of econometric techniques, this study reinforces the strength of capital market development and country’s attractiveness to inflow of FDI both in the short and in the long run.