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Savings-investment-financial development trilogy: evidence from SSA

Author

Listed:
  • Ibrahim D. Raheem
  • Mutiu Abimbola Oyinlola

Abstract

Purpose - The study seeks to examine the role of financial development (FD) in the Feldstein–Horioka (FH) puzzle. The novelty of this study is based on the fact that the measures of FD are expanded to account for the qualitative nature of the financial sector (“better finance”). Design/methodology/approach - The study used annual dataset for 37 countries in sub-Saharan Africa (SSA) for the period 1999 through 2010 and relied on the system generalised method of moments (GMM) technique, which takes accounts of endogeneity-related issues. Findings - The estimated FH coefficients ranged between 0.419 and 0.720. The qualitative measures of FD have higher FH coefficient relative to the traditional or quantitative measure of FD (“more finance”). Hence, improvement in both the quantity and quality of the financial sector might be helpful in the mobilization, distribution and utilization of savings for investment purposes within these economies. The high FH coefficients obtained suggest that the FH puzzle does not hold in the SSA region. Practical implications - Policymakers should formulate and design policies that would seek to ensure the development of the financial sector both in terms of quantity and quality. While taking this into consideration, special attention should be devoted to the qualitative measure of finance. Originality/value - The study extends the work of Adeniyi and Egwaikhide (2013) by providing different and, possibly better proxies for FD to capture the efficiency and the qualitative nature of the financial system. This crux of the study serves as the value addition to the literature, as no other study the authors are aware of, has considered the importance of “better finance” indicators in the saving – investment nexus investigation.

Suggested Citation

  • Ibrahim D. Raheem & Mutiu Abimbola Oyinlola, 2017. "Savings-investment-financial development trilogy: evidence from SSA," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 9(1), pages 20-33, April.
  • Handle: RePEc:eme:jfeppp:jfep-02-2016-0013
    DOI: 10.1108/JFEP-02-2016-0013
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    Citations

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    Cited by:

    1. Kunofiwa Tsaurai, 2017. "Savings Mobilization and Financial Development during the Multicurrency Regime Period in Zimbabwe," Journal of Economics and Behavioral Studies, AMH International, vol. 9(3), pages 152-162.
    2. Çetin, Murat & Sarıgül, Sevgi Sümerli & Işık, Cem & Avcı, Pınar & Ahmad, Munir & Alvarado, Rafael, 2023. "The impact of natural resources, economic growth, savings, and current account balance on financial sector development: Theory and empirical evidence," Resources Policy, Elsevier, vol. 81(C).
    3. Mesagan Peter Ekundayo & Amadi Nkem Agatha, 2017. "The Efficiency Market Theory: A Case of Commercial Banks Stocks in Nigeria," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 583-587, December.

    More about this item

    Keywords

    Banks; Financial markets and the macroeconomy; International finance; Econometric modeling; C23; D73; F12; H5;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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