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Financial development,savings and investment in South Africa: A dynamic causality test

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  • Muyambiri, Brian
  • Odhiambo, Nicholas M

Abstract

This study investigates the causal relationship between financial development andinvestment in South Africa during the period from 1976 to 2014. The studyincorporates both bank-based and market-based segments of financial sectordevelopment. In addition, composite indices for bank-based and market-basedfinancial development indicators are used as explanatory variables. The studyincorporates savings as an intermittent variable ? thereby creating a simple trivariateGranger-causality model. Using the ARDL bounds testing approach to cointegrationand the ECM-based Granger-causality test, the study finds a unidirectional causalflow from investment to financial development, but only in the short run. In the longrun, the study fails to find any causal relationship between financial development andinvestment. These results apply irrespective of whether bank-based or market-basedfinancial development is used as a proxy for financial sector development. Thefindings of this study have important policy implications.

Suggested Citation

  • Muyambiri, Brian & Odhiambo, Nicholas M, 2017. "Financial development,savings and investment in South Africa: A dynamic causality test," Working Papers 22657, University of South Africa, Department of Economics.
  • Handle: RePEc:uza:wpaper:22657
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    1. repec:spd:journl:v:68:y:2018:i:2-3:p:62-73 is not listed on IDEAS
    2. 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.

    More about this item

    Keywords

    South Africa; Investment; Bank-based financial development; Market-based financial development; Trivariate Granger-causality;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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