Finance-investment-growth nexus in South Africa: An ARDL-bounds testing procedure
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Authors
Odhiambo N.M.
Issue Date
2010
Type
Article
Language
en
Keywords
Africa; Economic growth; Financial deepening; Investment; South Africa credit provision; development strategy; econometrics; economic development; economic growth; economic policy; financial market; financial system; Granger causality test; Gross Domestic Product; investment; numerical model; private sector; South Africa
Alternative Title
Abstract
In this paper we examine the dynamic causal relationship between financial development, investment and economic growth in South Africa-using the newly developed ARDL-Bounds testing procedure. Unlike the majority of the previous studies, we incorporate investment in the bivariate model between financial development and economic growth-thereby creating a simple trivariate causality model. In addition, we use three proxies of financial development, namely M2/GDP, the ratio of private sector credit to GDP and the ratio of liquid liabilities to GDP in order to test the robustness of the results. Our results show that, on the whole, economic growth has a formidable influence on the financial sector development. The study also finds that there is a distinct unidirectional causal flow from economic growth to investment. Moreover, the study also finds that investment, which results from growth, Granger-causes financial development. The study, therefore, recommends that South Africa should intensify its pro-growth policies in order to bolster investment and financial development. © 2010 Springer Science+Business Media, LLC.
Description
Citation
Economic Change and Restructuring
43
3
43
3
Publisher
License
Journal
Volume
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PubMed ID
DOI
ISSN
15739414