Regarding the finance-investment nexus in sub-Saharan Africa: an issue of too little or too much finance?

IF 1.9 Q2 BUSINESS, FINANCE Managerial Finance Pub Date : 2024-08-26 DOI:10.1108/mf-05-2024-0372
Mohammed Gbanja Abdulai, Samuel Sekyi, William Gabriel Brafu-Insaidoo
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Abstract

Purpose

This study investigates the finance-investment nexus in sub-Saharan Africa using data from 41 countries spanning the period from 2000 to 2022. The central question addressed is whether there is a “too little” or “too much” finance problem in the region.

Design/methodology/approach

This study employs a system-generalised method of moments (GMM) approach to analyse the association between finance and private investment. Additionally, a dynamic threshold regression model is used to uncover potential nonlinearities in this relationship.

Findings

Initially, the study identifies a negative correlation between increased finance and private investment. However, further analysis using the dynamic threshold regression model reveals a critical threshold level of finance. Specifically, the threshold is found to be 6.52% of domestic credit to the private sector and 23.18% using the financial development index. Below this threshold, finance negatively impacts private investment, while surpassing this threshold leads to positive growth in private investment. These findings indicate an issue of “too little” finance in the finance and private investment nexus in sub-Saharan Africa. The results are robust across different model specifications.

Research limitations/implications

The implications of this study highlight the importance of identifying critical thresholds for financing to enhance investment expenditures in the region.

Originality/value

This study contributes to the literature by uncovering nonlinearities in the finance-investment nexus in sub-Saharan Africa. The identification of critical thresholds provides valuable insights for policymakers, emphasising the need to strengthen the financial sector in countries operating below these thresholds to promote private investment and economic growth.

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关于撒哈拉以南非洲的金融-投资关系:是资金太少还是太多的问题?
本研究使用 41 个国家 2000 年至 2022 年期间的数据,对撒哈拉以南非洲的金融-投资关系进行了调查。本研究采用系统广义矩方法(GMM)分析金融与私人投资之间的关系。此外,还使用了动态阈值回归模型来揭示这种关系中潜在的非线性因素。研究结果最初,研究发现金融增加与私人投资之间存在负相关关系。然而,利用动态阈值回归模型进行的进一步分析揭示了金融的临界阈值水平。具体来说,临界值为私营部门国内信贷的 6.52%,金融发展指数为 23.18%。低于这一临界值,金融会对私人投资产生负面影响,而超过这一临界值则会导致私人投资的正增长。这些研究结果表明,在撒哈拉以南非洲地区,金融与私人投资之间存在 "太少 "的问题。本研究的意义强调了确定融资临界阈值以提高该地区投资支出的重要性。 本研究通过揭示撒哈拉以南非洲地区金融-投资关系中的非线性因素,为相关文献做出了贡献。临界阈值的确定为决策者提供了宝贵的见解,强调了在低于这些阈值的国家加强金融部门以促进私人投资和经济增长的必要性。
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来源期刊
Managerial Finance
Managerial Finance BUSINESS, FINANCE-
CiteScore
3.30
自引率
12.50%
发文量
103
期刊介绍: Managerial Finance provides an international forum for the publication of high quality and topical research in the area of finance, such as corporate finance, financial management, financial markets and institutions, international finance, banking, insurance and risk management, real estate and financial education. Theoretical and empirical research is welcome as well as cross-disciplinary work, such as papers investigating the relationship of finance with other sectors.
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