Open AccessFinancial Development and Investment in Botswana: A Multivariate Causality Test
Author(s) -
Brian Muyambiri,
Nicholas M. Odhiambo
Publication year - 2018
Publication title -
folia oeconomica stetinensia
Language(s) - English
Resource type - Journals
eISSN - 1898-0198
pISSN - 1730-4237
DOI - 10.2478/foli-2018-0020
Subject(s) - granger causality , investment (military) , economics , causality (physics) , distributed lag , order (exchange) , financial market , autoregressive model , financial sector development , finance , vector autoregression , multivariate statistics , econometrics , financial sector , mathematics , statistics , physics , quantum mechanics , politics , political science , law
This paper examines the causal relationship between financial development and investment in Botswana between 1976 and 2014. The autoregressive distributed-lag (ARDL) bounds testing approach and a trivariate Granger-causality model are employed. In order to capture the breadth and depth of the financial sector in the study country, both bank- and market-based financial development indices are used. The results show that there is a bidirectional Granger-causal relationship between both bank-based and market-based financial development and investment in the short run. In the long run, a distinct causal flow is found to prevail only from investment to bank-based financial development. Given the findings, the causal relationship between financial development and investment is not a given as implied in economic literature. For Botswana, policies that enhance both investment and market-based financial development should be employed in the short run.