IDEAS home Printed from https://ideas.repec.org/a/tuz/journl/v21y2023i1p25-40.html
   My bibliography  Save this article

The Nexus Of External Debt, Private Investment And Financial Development: Evidence From Selected Sacu Countries

Author

Listed:
  • Brian Muyambiri

    (Department of Business Studies, School of Business and Management Studies, Botswana Open University, Botswana, brianmuy@gmail.com & Department of Finance; Investment Management, College of Business and Economics, University of Johannesburg, South Africa)

  • John-Baptiste Mabejane

    (Department of Finance; Investment Management, College of Business and Economics, University of Johannesburg, South Africa)

Abstract

This paper examines the dynamic causal relationship between financial development, external debt and investment in Lesotho, Namibia and Eswatini from 1980-2020 using a multivariate Granger-causality model. The study considers trade, savings and economic growth as intermittent variables in the analysis. Adopting the autoregressive distributed lag (ARDL) bounds testing approach, the study results show that the causal relationship between financial development, external debt and investment in Lesotho, Namibia and Eswatini from 1980-2020 is country-dependent. For Eswatini, both investment and financial development Granger cause external debt, both in the short run and in the long run. However, for Lesotho and Namibia, it is the contrary, with external debt Granger causing financial development both in the short run and in the long run. The exception is Lesotho, where external debt is also found to Granger cause investment, also both in the short run and the long run. The study, therefore, concludes that for Eswatini, immense efforts in promoting investment and financial development chiefly stimulate external debt and the real sector in both the short run and the long run. For Namibia and Lesotho, external debt drives financial development. In addition, for Lesotho, external debt also drives investment.

Suggested Citation

  • Brian Muyambiri & John-Baptiste Mabejane, 2023. "The Nexus Of External Debt, Private Investment And Financial Development: Evidence From Selected Sacu Countries," Economic Review: Journal of Economics and Business, University of Tuzla, Faculty of Economics, vol. 21(1), pages 25-40, May.
    • Handle: RePEc:tuz:journl:v:21:y:2023:i:1:p:25-40
    as

    Download full text from publisher

    File URL: http://ef.untz.ba/wp-content/uploads/2023/12/2_ER_MAY_2023_2_DOI_pp_25_40-1.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Erasmus L. Owusu, 2021. "The relationship between foreign direct investment and economic growth: A multivariate causality approach from Namibia," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2990-2997, April.
    2. Yılmaz Toktaş & Ali Altiner & Eda Bozkurt, 2019. "The relationship between Turkey’s foreign debt and economic growth: an asymmetric causality analysis," Applied Economics, Taylor & Francis Journals, vol. 51(26), pages 2807-2817, June.
    3. Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(1), pages 99-125.
    4. Brian Muyambiri & Nicholas Odhiambo, 2017. "Financial Development, Savings and Investment in South Africa: A Dynamic Causality Test," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 17(3), pages 1-10, September.
    5. Eric Evans Osei Opoku & Muazu Ibrahim & Yakubu Awudu Sare, 2019. "The causal relationship between financial development and economic growth in Africa," International Review of Applied Economics, Taylor & Francis Journals, vol. 33(6), pages 789-812, November.
    6. Sahoo, Pravakar & Dash, Ranjan Kumar, 2013. "Financial sector development and domestic savings in South Asia," Economic Modelling, Elsevier, vol. 33(C), pages 388-397.
    7. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    8. Claire Emilienne Wati Yameogo & Joseph Ayoola Omojolaibi, 2021. "Trade liberalisation, economic growth and poverty level in sub-Saharan Africa (SSA)," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 34(1), pages 754-774, January.
    9. Kar, Muhsin & NazlIoglu, Saban & AgIr, Hüseyin, 2011. "Financial development and economic growth nexus in the MENA countries: Bootstrap panel granger causality analysis," Economic Modelling, Elsevier, vol. 28(1-2), pages 685-693, January.
    10. Innocent U Duru, 2021. "Trade Liberalization and Economic Growth: The Scenario of the MINT Economies," Economy, Asian Online Journal Publishing Group, vol. 8(2), pages 35-48.
    11. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    12. Brian Muyambiri & Nicholas M. Odhiambo, 2018. "Financial Development and Investment Dynamics in Mauritius: A Trivariate Granger-Causality Analysis," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 68(2-3), pages 62-73, April-Sep.
    13. Sharif Hossain & Rajarshi Mitra, 2013. "The Determinants of Economic Growth in Africa: A Dynamic Causality and Panel Cointegration Analysis," Economic Analysis and Policy, Elsevier, vol. 43(2), pages 217-226, September.
    14. Adel Shakeeb Mohsen, 2015. "Effects of Trade Openness And Economic Growth on the Private Sector Investment in Syria," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(3), pages 168-176.
    15. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    16. John M. Kagochi & Omar M. Al Nasser & Ellene Kebede, 2013. "Does financial development hold the key to economic growth?: the case of sub-saharan Africa," Journal of Developing Areas, Tennessee State University, College of Business, vol. 47(2), pages 61-79, July-Dece.
    17. Perron, Pierre, 1997. "Further evidence on breaking trend functions in macroeconomic variables," Journal of Econometrics, Elsevier, vol. 80(2), pages 355-385, October.
    18. Kunofiwa Tsaurai, 2017. "Investigating the Relationship between Financial Development, Trade Openness and Economic Growth in Argentina: A Multivariate Causality Framework," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 13(3), pages 39-55, JUNE.
    19. Menyah, Kojo & Nazlioglu, Saban & Wolde-Rufael, Yemane, 2014. "Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach," Economic Modelling, Elsevier, vol. 37(C), pages 386-394.
    20. Sheilla Nyasha & Odhiambo, 2015. "Banks, stock market development and economic growth in South Africa: a multivariate causal linkage," Applied Economics Letters, Taylor & Francis Journals, vol. 22(18), pages 1480-1485, December.
    21. Siphe-okuhle Fakudze & Asrat Tsegaye & Kin Sibanda, 2021. "The relationship between financial development and economic growth in Eswatini (formerly Swaziland)," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 13(1), pages 15-28, October.
    22. Waliu Olawale Shittu & Sallahuddin Hassan & Muhammad Atif Nawaz, 2018. "The nexus between external debt, corruption and economic growth: evidence from five SSA countries," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 9(3), pages 319-334, July.
    23. Muhammad Shahbaz & Talat Afza & Muhammad Shahbaz Shabbir, 2013. "Financial Development, Domestic Savings and Poverty Reduction in Pakistan: Using Cointegration and Granger Causality Analysis," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 1(5), pages 59-73, May.
    24. Taner Turan & Halit Yanıkkaya, 2021. "External debt, growth and investment for developing countries: some evidence for the debt overhang hypothesis," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 20(3), pages 319-341, September.
    25. Muyambiri Brian & Odhiambo Nicholas M., 2018. "Financial Development and Investment in Botswana: A Multivariate Causality Test," Folia Oeconomica Stetinensia, Sciendo, vol. 18(2), pages 72-89, December.
    Full references (including those not matched with items on IDEAS)

    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. Ali, Adnan & Ramakrishnan, Suresh & Faisal,, 2022. "Financial development and natural resources. Is there a stock market resource curse?," Resources Policy, Elsevier, vol. 75(C).
    2. Eléazar Zerbo, 2015. "What determines the long-run growth in Sub-Saharan Africa? Exploring the role of energy, trade openness and financial development in six countries," Working Papers hal-01238524, HAL.
    3. Dakpogan, Arnaud & Smit, Eon, 2018. "The effect of electricity losses on GDP in Benin," MPRA Paper 89545, University Library of Munich, Germany.
    4. Mohammad Mafizur Rahman & Muhammad Shahbaz, 2013. "Do Imports and Foreign Capital Inflows Lead Economic Growth? Cointegration and Causality Analysis in Pakistan," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 14(1), pages 59-81, March.
    5. Shahzad, Syed Jawad Hussain & Kumar, Ronald Ravinesh & Zakaria, Muhammad & Hurr, Maryam, 2017. "Carbon emission, energy consumption, trade openness and financial development in Pakistan: A revisit," Renewable and Sustainable Energy Reviews, Elsevier, vol. 70(C), pages 185-192.
    6. Kojo Menyah & Yemane Wolde-Rufael, 2012. "Wagner'S Law Revisited: A Note From South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 80(2), pages 200-208, June.
    7. Muyambiri Brian & Odhiambo Nicholas M., 2018. "Financial Development and Investment in Botswana: A Multivariate Causality Test," Folia Oeconomica Stetinensia, Sciendo, vol. 18(2), pages 72-89, December.
    8. Ritu Rani & Naresh Kumar, 2018. "Panel Data Analysis of Financial Development, Trade Openness, and Economic Growth: Evidence from BRICS Countries," Emerging Economy Studies, International Management Institute, vol. 4(1), pages 1-18, May.
    9. Constantinos Alexiou & Joseph G. Nellis, 2017. "Cyclical Multiplier and Zero Low Bound Effects of Government Expenditure on Economic Growth: Evidence for Greece," Australian Economic Papers, Wiley Blackwell, vol. 56(2), pages 119-133, June.
    10. Saungweme Talknice & Odhiambo Nicholas M., 2020. "Causality Between Public Debt, Public Debt Service and Economic Growth in an Emerging Economy," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 65(1), pages 1-19, April.
    11. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
    12. Ansgar Belke & Robert Czudaj, 2010. "Is Euro Area Money Demand (Still) Stable? Cointegrated VAR Versus Single Equation Techniques," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(4), pages 285-315.
    13. Ahmed, Khalid, 2015. "The sheer scale of China’s urban renewal and CO2 emissions: Multiple structural breaks, long-run relationship and short-run dynamics," MPRA Paper 71035, University Library of Munich, Germany.
    14. Chow, Sheung Chi & Vieito, João Paulo & Wong, Wing Keung, 2019. "Do both demand-following and supply-leading theories hold true in developing countries?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 513(C), pages 536-554.
    15. Jagadish Prasad Bist & Nar Bahadur Bista, 2018. "Finance–Growth Nexus in Nepal: An Application of the ARDL Approach in the Presence of Structural Breaks," Vikalpa: The Journal for Decision Makers, , vol. 43(4), pages 236-249, December.
    16. Alola, Andrew Adewale & Akadiri, Seyi Saint, 2021. "Clean energy development in the United States amidst augmented socioeconomic aspects and country-specific policies," Renewable Energy, Elsevier, vol. 169(C), pages 221-230.
    17. Muhammad Shahbaz & Mete Feridun, 2012. "Electricity consumption and economic growth empirical evidence from Pakistan," Quality & Quantity: International Journal of Methodology, Springer, vol. 46(5), pages 1583-1599, August.
    18. Muhammad Shahbaz & Amatul Razzaq Chaudhary & Syed Jawad Hussain Shahzad, 2020. "Is energy consumption sensitive to foreign capital inflows and currency devaluation in Pakistan?," Applied Economics, Taylor & Francis Journals, vol. 50(52), pages 5641-5658, June.
    19. Sulaiman, Saidu & Masih, Mansur, 2017. "Is liberalizing finance the game in town for Nigeria ?," MPRA Paper 95569, University Library of Munich, Germany.
    20. Loi, Tian Sheng Allan & Loo, Soh Leng, 2016. "The impact of Singapore’s residential electricity conservation efforts and the way forward. Insights from the bounds testing approach," Energy Policy, Elsevier, vol. 98(C), pages 735-743.

    More about this item

    Keywords

    financial development; external debt investment; Lesotho; Eswatini; Namibia;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    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:tuz:journl:v:21:y:2023:i:1:p:25-40. 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: Senad Celikovic (email available below). General contact details of provider: https://edirc.repec.org/data/efutzba.html .

    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.