Wits Business School (ETDs)

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Browsing Wits Business School (ETDs) by Author "Albert, Letting K."

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    Investability and the likelihood of graduation into emerging market status: a focus on developing economies
    (University of the Witwatersrand, Johannesburg, 2021) Albert, Letting K.; Ojah, Kalu
    Emerging market economies remain a valuable component for many investors due to existing diversification benefits within the risk-return framework. In return for their attractiveness, emerging market economies achieve affordable external financing which is critical for their growth. Most developing countries are trying to attract foreign investment because being deemed investable is analogous to be index-included. This paper sought to determine the stylized factors of investability in developing countries. The factors were estimated using a Logit model against 72 countries comprising of graduated countries appearing in the MSCI index and other economically similar countries, with potential for an upgrade. The study revealed that macroeconomic indicators such as GDP, taxation and unemployment rate were statistically significant while Government expenditure, inflation and trade openness had a negative impact on the probability of inclusion in the emerging market index. Government effectiveness, human capital development, production infrastructure and the level of private investment were found to positively impact investability. Institutional variables such as business climate, transparency and accountability, ease of doing business rank and depth of credit information were found to show a strong positive correlation to a country’s graduation into the index. It was observed that foreign investors prefer a large, transparent and liquid market wheresovereign credit ratings show the right signals. With respect to policy making, the arguments based on this study promote the view that index inclusion is a gradual process and is followed by increased investor awareness. The findings show that efforts by countries aiming for index inclusion can increase the likelihood by focusing on faster pace of fixing macroeconomic indicators. While efforts to improve on all fronts would be desirable, progress on physical infrastructure, human capital, financial market development, regulatory framework and political risk is likely to be gradual and not directly linked to macroeconomic policies. Simultaneously, a steady progress towards well-functioning financial markets and domestic policies is likely to have a greater impact on increasing the near-term investability