Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237212 
Year of Publication: 
2020
Citation: 
[Journal:] Financial Innovation [ISSN:] 2199-4730 [Volume:] 6 [Issue:] 1 [Publisher:] Springer [Place:] Heidelberg [Year:] 2020 [Pages:] 1-15
Publisher: 
Springer, Heidelberg
Abstract: 
This study investigated the impact of financial sector development on domestic investment in selected countries of the Economic Community of West African States (ECOWAS) for the years 1985-2017. The study employed the augmented mean group procedure, which accounts for country-specific heterogeneity and cross-sectional dependence, and the Granger non-causality test to test for causality in the presence of cross-sectional dependence. The results show that (1) The impact of financial sector development on domestic investment depends on the measure of financial sector development utilised; (2) Domestic credit to the private sector has a positive but insignificant impact on domestic investment in ECOWAS, whereas banking intermediation efficiency (i.e., ability of the banks to transform deposits into credit) and broad money supply negatively and significant influence domestic investment; (3) Cross-country differences exist in the impact of financial sector development on domestic investment in the selected ECOWAS countries; and (4) Domestic credit to the private sector Granger causes domestic investment in ECOWAS. The study recommends careful consideration in the measure of financial development that is utilised as a policy instrument to foster domestic investment. We also highlight the importance of employing country-specific domestic investment policies to avoid blanket policy measures. Domestic credit to the private sector should be given priority when forecasting domestic investment into the future.
Subjects: 
Financial sector development
Domestic investment
Augmented mean group
Granger non-causality test
ECOWAS
JEL: 
C5
E2
E5
G0
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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