Using 1980 - 2012 annual data, the study empirically investigates the dynamic relationship between financial development and economic growth in three developing countries (South Africa, Brazil and Kenya) and three developed countries (United States of America, United Kingdom and Australia). The study was motivated by the current debate regarding the role of financial development in the economic growth process, and their causal relationship. The debate centres on whether financial development impacts positively or negatively on economic growth and whether it Granger-causes economic growth or vice versa. To this end, two models have been used. In Model 1 the impact of bank- and market-based financial development on economic growth is examined, while in Model 2 it is the causality between the two that is explored. Using the autoregressive distributed lag (ARDL) bounds testing approach to cointegration and error-correction based causality test, the results were found to differ from country to country and over time. These results were also found to be sensitive to the financial development proxy used. Based on Model 1, the study found that the impact of bank-based financial development on economic growth is positive in South Africa and the USA, but negative in the U.K – and neither positive nor negative in Kenya. Elsewhere the results were inconclusive. Market-based financial development was found to impact positively in Kenya, USA and the UK but not in the remaining countries. Based on Model 2, the study found that bank-based financial development Granger-causes economic growth in the UK, while in Brazil they Granger-cause each other. However, in South Africa, Kenya and USA no causal relationship was found. In Australia the results were inconclusive. The study also found that in the short run, market-based financial development Granger-causes economic growth in the USA but that in South Africa and Brazil, the reverse applies. On the other hand bidirectional causality was found to prevail in Kenya in the same period. / Economics / DCOM (Economics)

The study examines the dynamic relationship between financial development and investment in three Southern African countries (Botswana, South Africa and Mauritius) during the period 1976 – 2014 using annual data. The motivation for selecting these countries is mainly based on their different characteristics in their economic and financial structure. Employing the Autoregressive Distributed Lag (ARDL) bounds test approach, the study examines the role of financial development in boosting investment; and the causal relationship between financial development and investment. The study makes use of composite financial development indices and divides financial development into bank-based and market-based financial development. In addition, both the impact of bank- and market-based financial development on investment, on the one hand; and the causality between bank- and market-based financial development and investment, on the other, were examined within the flexible accelerator model/framework. For both models, both bank-based and market-based financial development are assumed as having an accelerator-enhancing effect on investment. Empirical results show that, for Botswana, the impact of bank-based financial development on investment is positive in both the short run and the long run while no impact of market-based financial development is found for both periods. For South Africa, the effect of bank-based financial development on investment is found to be negative in the short run and has no impact in the long run. However, market-based financial development has only a positive effect on investment in the long run. For Mauritius, market-based financial development is the only type of financial development found to have a significant positive effect on investment, and only, in the short run. The results of the causality test show that: for Mauritius, both bank-based and market-based financial development tend to drive investment, both in the short run and in the long run; while- in South Africa, investment drives both bank-based and market-based financial development only in the short run. In Botswana, bank-based and market-based financial development and investment drive each other in the short run while investment tends to only drive bank-based financial development in the long run. Therefore, all three countries show differing results and tend to confirm that there are inter-country differences that determine the relationship between investment and financial development. The inter-country differences maybe as a result of the different stages of financial and economic development for each country. / Economics / D. Phil. (Economics)

Using 1980 - 2012 annual data, the study empirically investigates the dynamic relationship between financial development and economic growth in three developing countries (South Africa, Brazil and Kenya) and three developed countries (United States of America, United Kingdom and Australia). The study was motivated by the current debate regarding the role of financial development in the economic growth process, and their causal relationship. The debate centres on whether financial development impacts positively or negatively on economic growth and whether it Granger-causes economic growth or vice versa. To this end, two models have been used. In Model 1 the impact of bank- and market-based financial development on economic growth is examined, while in Model 2 it is the causality between the two that is explored. Using the autoregressive distributed lag (ARDL) bounds testing approach to cointegration and error-correction based causality test, the results were found to differ from country to country and over time. These results were also found to be sensitive to the financial development proxy used. Based on Model 1, the study found that the impact of bank-based financial development on economic growth is positive in South Africa and the USA, but negative in the U.K – and neither positive nor negative in Kenya. Elsewhere the results were inconclusive. Market-based financial development was found to impact positively in Kenya, USA and the UK but not in the remaining countries. Based on Model 2, the study found that bank-based financial development Granger-causes economic growth in the UK, while in Brazil they Granger-cause each other. However, in South Africa, Kenya and USA no causal relationship was found. In Australia the results were inconclusive. The study also found that in the short run, market-based financial development Granger-causes economic growth in the USA but that in South Africa and Brazil, the reverse applies. On the other hand bidirectional causality was found to prevail in Kenya in the same period. / Economics / D. Com. (Economics)