Capital market development and investment growth in sub -Saharan Africa

Abstract

This study sought to investigate the impact of capital market development on investment growth in six Sub-Saharan Africa countries. Literature review identified three main factors that can proxy capital market development in an economy, and that can also directly affect investment growth. Investment growth is proxied by changes in gross fixed capital or capital formation. Data used in this study span a period of 18 years converted from quarterly to monthly frequency. Quarterly frequency data was obtained from DataStream terminal raging from January 2000 to December 2017. Broad Market Liquidity, Changes in the Index price, and market capitalization are regressed against investment growth variable using Pooled OLS and Panel Causality test. Results indicate that market liquidity, return of the market and market capitalization are significantly positive determinates of investment growth in the six countries included in the study. Panel Causality Test reveal that market liquidity and market return have reverse causal relationship. On policy grounds, this study recommends to governments in Sub-Saharan Africa to create an enabling environment for capital market to flourish and by so doing, investment growth will be attracted