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Legal Environment, Finance Channels and Investment: The East African Example

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  • Kalu Ojah
  • Tendai Gwatidzo
  • Sheshangai Kaniki

Abstract

How do legal environments and finance affect investments by firms in the East African community? Property rights, external and internal finance channels - key conduits of the transmission mechanism from 'legal environment' to 'investment'- individually and interactively affect firms' decision to invest. Firms that perceive secure property rights are more likely to invest in fixed capital. The interactions suggest governments in this community would do well to pursue investment/growth policies that slant heavily towards financial markets deepening while not ignoring enhancement of legal infrastructures. Overall, property rights, external finance, internal finance, firm size, and an export-orientation, are important determinants of the investment decision.

Suggested Citation

  • Kalu Ojah & Tendai Gwatidzo & Sheshangai Kaniki, 2010. "Legal Environment, Finance Channels and Investment: The East African Example," Journal of Development Studies, Taylor & Francis Journals, vol. 46(4), pages 724-744.
  • Handle: RePEc:taf:jdevst:v:46:y:2010:i:4:p:724-744
    DOI: 10.1080/00220380903012722
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    References listed on IDEAS

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    1. Thorsten Beck & Ross Levine, 2003. "Legal institutions and financial development," Policy Research Working Paper Series 3136, The World Bank.
    2. John McArthur & Francis Teal, 2002. "Corruption and firm performance in Africa," CSAE Working Paper Series 2002-10, Centre for the Study of African Economies, University of Oxford.
    3. Francis Teal & John McArthur, 2002. "Corruption and Firm Performance in Africa," Economics Series Working Papers WPS/2002-10, University of Oxford, Department of Economics.
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    Cited by:

    1. Emmanuel O. Nwosu & Anthony Orji & Vivian Nwangwu & Chioma Nwangwu, 2015. "Is there Discrimination Against Women Entrepreneurs in Formal Credit Markets in Nigeria?," Working Papers PMMA 2015-01, PEP-PMMA.
    2. Dereje Regasa & David Fielding & Helen Roberts, 2017. "Access to Financing and Firm Growth: Evidence from Ethiopia," Working Papers 1707, University of Otago, Department of Economics, revised Apr 2017.
    3. repec:bla:afrdev:v:29:y:2017:i:s1:p:56-72 is not listed on IDEAS
    4. Ceyhun Haydaroglu, 2015. "The Relationship between Property Rights and Economic Growth: an Analysis of OECD and EU Countries," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 4, pages 217-239, December.
    5. Rajesh SN Raj & Kunal Sen, 2016. "Moving out of the bottom of the economy? Constraints to firm transition in the Indian informal manufacturing sector," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-20, December.
    6. Gwatidzo, Tendai & Ojah, Kalu, 2014. "Firms’ debt choice in Africa: Are institutional infrastructure and non-traditional determinants important?," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 152-166.

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