IDEAS home Printed from https://ideas.repec.org/a/spr/inrvec/v65y2018i4d10.1007_s12232-018-0313-z.html
   My bibliography  Save this article

Private capital inflows and stock market interface in sub-Saharan Africa

Author

Listed:
  • Samson Edo

    (University of Benin)

Abstract

The financial market school of thought argues that financial market plays a key role in facilitating capital flows to less developed countries of the world. This school considers stock market a strong and potent channel of attracting and mobilizing capital for development across the globe. The study in this paper is therefore undertaken to determine the validity of this argument, by investigating how the stock market interfaces with other variables to influence capital flows to sub-Saharan Africa. The empirical evidence clearly validates the importance of stock market by showing its direct positive impact on all the components of private capital inflows, an impact that is significantly enhanced by return on investment in the market. The stock market is also revealed to have a maximum threshold that suggests it possesses the capacity to channel a significant proportion of potential capital inflows. These findings point to the importance of raising the level of stock market development in order to attract more capital flows to the region, and indeed the less developed regions of the world.

Suggested Citation

  • Samson Edo, 2018. "Private capital inflows and stock market interface in sub-Saharan Africa," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 65(4), pages 507-538, December.
    • Handle: RePEc:spr:inrvec:v:65:y:2018:i:4:d:10.1007_s12232-018-0313-z
    DOI: 10.1007/s12232-018-0313-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s12232-018-0313-z
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s12232-018-0313-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mukesh Ralhan, 2006. "Determinants of Capital Flows: A Cross-Country Analysis," Econometrics Working Papers 0601, Department of Economics, University of Victoria.
    2. Wooldridge, Jeffrey M., 1999. "Distribution-free estimation of some nonlinear panel data models," Journal of Econometrics, Elsevier, vol. 90(1), pages 77-97, May.
    3. Raddatz, Claudio & Schmukler, Sergio L., 2012. "On the international transmission of shocks: Micro-evidence from mutual fund portfolios," Journal of International Economics, Elsevier, vol. 88(2), pages 357-374.
    4. Luiz R. de Mello Jr., 1997. "Foreign Direct Investment in Developing Countries: A Selective Survey," Studies in Economics 9701, School of Economics, University of Kent.
    5. R. N. Agarwal, 1997. "Foreign Portfolio Investment In Some Developing Countries: A Study of Determinants and Macroeconomic Impact," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 32(2), pages 217-229, July.
    6. Blundell, Richard & Griffith, Rachel & Windmeijer, Frank, 2002. "Individual effects and dynamics in count data models," Journal of Econometrics, Elsevier, vol. 108(1), pages 113-131, May.
    7. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    8. Ramon Moreno, 2000. "What explains capital flows?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jul21.
    9. Mr. Yibin Mu & Mr. Peter Phelps & Ms. Janet Gale Stotsky, 2013. "Bond Markets in Africa," IMF Working Papers 2013/012, International Monetary Fund.
    10. Demirguc-Kunt, Ash & Levine, Ross, 1996. "Stock Markets, Corporate Finance, and Economic Growth: An Overview," The World Bank Economic Review, World Bank, vol. 10(2), pages 223-239, May.
    11. Sula, Ozan & Willett, Thomas D., 2009. "The reversibility of different types of capital flows to emerging markets," Emerging Markets Review, Elsevier, vol. 10(4), pages 296-310, December.
    12. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    13. Morris Goldstein & Michael Mussa, 1993. "The integration of world capital markets," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 245-330.
    14. Mrs. Poonam Gupta & Mr. James P. F. Gordon, 2003. "Portfolio Flows Into India: Do Domestic Fundamentals Matter?," IMF Working Papers 2003/020, International Monetary Fund.
    15. Sean Becketti & Charles S. Morris, 1992. "Are bank loans still special?," Economic Review, Federal Reserve Bank of Kansas City, vol. 77(Q III), pages 71-84.
    16. Tidiane KINDA, 2010. "Increasing Private Capital Flows To Developing Countries: The Role Of Physical And Financial Infrastructure In 58 Countries, 1970-2003," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).
    17. Nilanjana Roy, 2002. "Is Adaptive Estimation Useful For Panel Models With Heteroskedasticity In The Individual Specific Error Component? Some Monte Carlo Evidence," Econometric Reviews, Taylor & Francis Journals, vol. 21(2), pages 189-203.
    18. Froot, Kenneth A. & O'Connell, Paul G. J. & Seasholes, Mark S., 2001. "The portfolio flows of international investors," Journal of Financial Economics, Elsevier, vol. 59(2), pages 151-193, February.
    19. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    20. Koepke, Robin, 2015. "What Drives Capital Flows to Emerging Markets? A Survey of the Empirical Literature," MPRA Paper 62770, University Library of Munich, Germany.
    21. Mr. Nikola Spatafora & Ms. Oana Luca, 2012. "Capital Inflows, Financial Development, and Domestic Investment: Determinants and Inter-Relationships," IMF Working Papers 2012/120, International Monetary Fund.
    22. Henry, Peter Blair, 2000. "Do stock market liberalizations cause investment booms?," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 301-334.
    23. World Bank, 2012. "Global Development Finance 2012 : External Debt of Developing Countries," World Bank Publications - Books, The World Bank Group, number 2392, December.
    24. Hsiao, Cheng & Hashem Pesaran, M. & Kamil Tahmiscioglu, A., 2002. "Maximum likelihood estimation of fixed effects dynamic panel data models covering short time periods," Journal of Econometrics, Elsevier, vol. 109(1), pages 107-150, July.
    25. Peter Blair Henry & Peter Lombard Lorentzen, 2003. "Domestic Capital Market Reform and Access to Global Finance: Making Markets Work," NBER Working Papers 10064, National Bureau of Economic Research, Inc.
    26. Charles Komla Adjasi & Charles Amo Yartey, 2007. "Stock Market Development in Sub-Saharan Africa: Critical Issues and Challenges," IMF Working Papers 2007/209, International Monetary Fund.
    27. Ajit Singh, 1998. "Financial liberalisation, stockmarkets and economic development," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 8(1), pages 165-182.
    28. Caselli, Francesco & Esquivel, Gerardo & Lefort, Fernando, 1996. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Journal of Economic Growth, Springer, vol. 1(3), pages 363-389, September.
    29. Mody, Ashoka & Taylor, Mark P & Kim, Jung Yeon, 2001. "Modelling Fundamentals for Forecasting Capital Flows to Emerging Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(3), pages 201-216, July.
    30. Samson Edo, 2002. "The External Debt Problem in Africa: A Comparative Study of Nigeria and Morocco," African Development Review, African Development Bank, vol. 14(2), pages 221-236.
    31. Lusine LUSINYAN, 2002. "International Capital Flows, Economic Growth and Financial Market Efficiency," Economics Working Papers ECO2002/20, European University Institute.
    32. Whalley John & Weisbrod Aaron, 2012. "The Contribution of Chinese FDI to Africa's Pre Crisis Growth Surge," Global Economy Journal, De Gruyter, vol. 12(4), pages 1-28, December.
    33. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
    34. Chakrabarti, Avik, 2001. "The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross-Country Regressions," Kyklos, Wiley Blackwell, vol. 54(1), pages 89-113.
    35. Durham, J.B.J. Benson, 2004. "Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth," European Economic Review, Elsevier, vol. 48(2), pages 285-306, April.
    36. Levy, Haim, 1973. "The Demand for Assets Under Conditions of Risk," Journal of Finance, American Finance Association, vol. 28(1), pages 79-96, March.
    37. David G. Bishop & John E. Golob, 1997. "What long-run returns can investors expect from the stock market?," Economic Review, Federal Reserve Bank of Kansas City, vol. 82(Q III), pages 5-20.
    38. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
    39. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    40. Bleaney, Michael & Greenaway, David, 2001. "The impact of terms of trade and real exchange rate volatility on investment and growth in sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 65(2), pages 491-500, August.
    41. Mr. Thomas William Dorsey & Ms. Zuzana Brixiova & Sukhwinder Singh & Mr. Helaway Tadesse, 2008. "The Landscape of Capital Flows to Low-Income Countries," IMF Working Papers 2008/051, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Samson Edo & Eseosa Joy Sowemimo, 2022. "Correlative and asymmetric effects of information technology on capital flows," Netnomics, Springer, vol. 22(2), pages 231-257, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Choong, Chee-Keong & Baharumshah, Ahmad Zubaidi & Yusop, Zulkornain & Habibullah, Muzafar Shah, 2010. "Private capital flows, stock market and economic growth in developed and developing countries: A comparative analysis," Japan and the World Economy, Elsevier, vol. 22(2), pages 107-117, March.
    2. Samson Edo & Eseosa Joy Sowemimo, 2022. "Correlative and asymmetric effects of information technology on capital flows," Netnomics, Springer, vol. 22(2), pages 231-257, October.
    3. Yongfu Huang, 2011. "Private investment and financial development in a globalized world," Empirical Economics, Springer, vol. 41(1), pages 43-56, August.
    4. Dalila NICET-CHENAF & Eric ROUGIER, 2009. "FDI and growth: A new look at a still puzzling issue," Cahiers du GREThA (2007-2019) 2009-13, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    5. Gui-Diby, Steve Loris, 2014. "Impact of foreign direct investments on economic growth in Africa: Evidence from three decades of panel data analyses," Research in Economics, Elsevier, vol. 68(3), pages 248-256.
    6. Makiela, Kamil & Ouattara, Bazoumana, 2018. "Foreign direct investment and economic growth: Exploring the transmission channels," Economic Modelling, Elsevier, vol. 72(C), pages 296-305.
    7. Busse, Matthias & Groizard, José Luis, 2005. "FDI, Regulations and Growth," Conference papers 331335, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    8. Chee-Keong Choong, 2012. "Does domestic financial development enhance the linkages between foreign direct investment and economic growth?," Empirical Economics, Springer, vol. 42(3), pages 819-834, June.
    9. Matthias Busse & José Luis Groizard, 2008. "Foreign Direct Investment, Regulations and Growth," The World Economy, Wiley Blackwell, vol. 31(7), pages 861-886, July.
    10. Khaled Elmawazini & Elias G. Saleeby & Ahmed Ibn el Farouk & Bashayer AL-Naser, 2018. "Tripartite decomposition of labor productivity growth, FDI and human development: evidence from transition economies," Economic Change and Restructuring, Springer, vol. 51(2), pages 153-171, May.
    11. B. Seetanah, 2009. "Is Foreign Direct Investment Growth Conducive? New Evidences From Sub-Saharan African Countries, 1980-2005," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 9(2).
    12. Omar G. Aziz, 2022. "FDI inflows and economic growth in Arab region: The institutional quality channel," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 1009-1024, January.
    13. Shima’a Hanafy & Marcus Marktanner, 2019. "Sectoral FDI, absorptive capacity and economic growth – empirical evidence from Egyptian governorates," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(1), pages 57-81, January.
    14. Maria Adelaide Duarte & Marta Simões, 2004. "Human capital, mechanisms of technological diffusion and the role of technological shocks in the speed of diffusion. Evidence from a panel of Mediterranean countries," Notas Económicas, Faculty of Economics, University of Coimbra, issue 20, pages 102-134, December.
    15. Alguacil, M. & Cuadros, A. & Orts, V., 2011. "Inward FDI and growth: The role of macroeconomic and institutional environment," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 481-496, May.
    16. Mohamed Abdouli & Sami Hammami, 2017. "The Impact of FDI Inflows and Environmental Quality on Economic Growth: an Empirical Study for the MENA Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 8(1), pages 254-278, March.
    17. Bakri Abdul Karim & Zulkefly Abdul Karim & Mohamad Naufal Nasharuddin, 2018. "Corruption and Foreign Direct Investment (FDI) in ASEAN-5: A Panel Evidence," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 64, pages 145-156, Desember.
    18. Tsun Se Cheong & Yanrui Wu, 2013. "Globalization and Regional Inequality," Economics Discussion / Working Papers 13-10, The University of Western Australia, Department of Economics.
    19. Tun, yin-li & Azman-saini, w.n.w. & Law, siong-hook, 2012. "International evidence on the link between foreign direct investment and institutional quality," MPRA Paper 65644, University Library of Munich, Germany.
    20. Aida Caldera Sánchez & Filippo Gori, 2016. "Can Reforms Promoting Growth Increase Financial Fragility?: An Empirical Assessment," OECD Economics Department Working Papers 1340, OECD Publishing.

    More about this item

    Keywords

    Capital inflows; Private investments; Stock market; Developing countries;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:inrvec:v:65:y:2018:i:4:d:10.1007_s12232-018-0313-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.