economic growth vs financing 2018
158480882
Nexus between risk sharing vs non risk sharing financing and economic growth of Bangladesh: ARDL bound testing and continuous wavelet transform (CWT) approach
Purpose The purpose of this paper is to examine the linkage between Islamic financing principles and economic growth (EG) by taking into consideration two Islamic Financing Principles: Risk Sharing and non risk sharing separately. Design/methodology/approach The data for this study are obtained from the annual reports of all Islamic banks from Bangladesh using Bank scope database and annual report for the period 1984 2014. The research uses an Autoregressive Distributive Lags (ARDL) approach. For robustness, this study also employs a continuous wavelet transform approach. Findings The empirical findings reveal that the risk sharing instruments are positively related to the EG of the country. On the other hand, non risk sharing instruments are negatively related to the EG of the country. Research limitations/implications The dominant use of non risk sharing based financing has undermined the greater possibility of Islamic banking to contribute more to the EG of the country. Banks and other financial institutions need to pay greater attention to systemic risk created by risk transfer and apply risk sharing methods of financing more vigorously to achieve greater equity, efficient allocation of resources, stability and growth of the financial system and welfare of the society as a whole. Originality/value This study has advanced the knowledge by examining the issue of Islamic financing principles and EG. This is probably one of the first attempts to find the linkage between Islamic financing principles and EG by taking into consideration two portfolios: risk sharing and non risk sharing separately and provide significant insights for policy makers, market players and academicians.
Mohammad Ashraful Ferdous Chowdhury Chowdhury Shahed Akbar Mohammad Shoyeb
169840404
SME Financing in Africa: Collateral Lending vs Cash Flow Lending
It is argued that economic growth in Africa will be enhanced by the expansion of small and medium sized enterprises (SMEs) but these businesses face financing constraints which tend to hinder their business success. Starting from a discussion of the various sources of financing for SMEs in Africa, it is established that the most effective and cheapest source of capital for the SMEs is debt financing from banking and other microfinance institutions because of lender monitoring and the tax deductibility of the interest expense. However, collateral requirement which tends to be a major significant factor for mitigating the credit risk of the SMEs presents a problem to lending institutions because of market illiquidity, legal, administrative, and valuation difficulties. SMEs tend to be owned by low income entrepreneurs and families who normally do not have tangible, valuable and liquid collaterals, and even when collaterals are offered, it is a challenge to determine their market value. Often these problems result in the rejection of SME loan applications. As a solution to this problem, the paper introduces a concept of cash flow lending as a better alternative to the traditional asset backed lending. While asset backed or collateral lending emphasizes loan default and recovery from collaterals, cash flow lending is based on projected corporate positive cash flows, the required return of equity, equity valuation of the business, and finally, on the risk sharing principle between the lender and borrower. For the loan application to be approved, the requested loan and all existing debts of the SME should be less than the equity value of the company as estimated from the free cash flow model.
Ben Amoako-Adu Joseph P Eshun
158311640
Financing the Economic Stabilization and Growth Programme (Zambia Plus) in the Shadow of the IMF
This policy paper was prompted by a protracted deliberation between the Zambian Government and the International Monetary Fund (IMF) regarding a Fund supported economic programme.The Zambian authorities began contemplating an IMF "bailout package" in late 2015 in the wake of macroeconomic instabilities and growth slowdown that emerged during that year. The initial exploratory talks between the two parties in late 2015 and early 2016 were cordial. However, they were intermittently impeded because the build up to the August 2016 general elections naturally gave rise to political uncertainties, taking attention away from talks of IMF support. Thus, for several months between late 2015 and 2017, the talks dragged on without a conclusion. By the close of 2017, the issue of an IMF deal was still in abeyance. In February 2018, the IMF announced that it had declined the second request from Zambia because the borrowing plans of the authorities were still too ambitious and threatened to further escalate the already heightened risk of debt distress. Discussions towards a Fund supported programme were suspended, but the IMF left the door open to engage with Zambia through regular Article IV discussions and technical assistance (see Box 1.1) The Zambian Government did not offer any official statement reacting to the IMF position or specifying a counter strategy to bring the discussions back on course.
Caesar Cheelo
215796703
Trade And Financial Openness And Economic Growth In Morocco: Theoritical Debate
The development model adopted by Morocco since the 80s is characterized by the opening and conduct of structural reforms in favor of the conclusion of many free trade agreements, has had a significant impact both on depth strategic country and the economic attitude that prevailed until then. Following the development of globalized finance, there has been growing interest in understanding the effects of trade and financial openness on economic growth. During the 1980s, a large number of emerging and developing economies opened up their capital account, thus conforming to the "Washington Consensus" 2, which recommended a swift opening of the central bank account. capital associated with structural reforms and a strict fiscal policy to favor the external financing of productive capital, and thus the economic take off. The paper deals with the impact of trade and financial openness on economic growth and trade and financial openness nexus In recent decades, financial liberalization has been one of the most important strategies for Morocco to promote growth. However, debate emerges in a post financial crisis context on whether liberalizing financial markets and allowing for free access to international capital markets, would benefit or impede economic development. In spite of, This article looks at the impact of financial and trade openness on economic growth. The analysis is based on the review of theoretical and empirical literature on financial and trade openness and its causal link with growth and the effects of financial openness on economic growth. Date of Submission: 22 08 2018 Date of acceptance: 04 09 2018 I. Purpose of research The purpose of the study is to examine the impact of trade and financial openness on economic growth in morocco and answer the three questions: Did financial openness and international trade reinforce each other and drive economic growth more than a century ago? Does trade and Financial Openness Affect Economic Growth in moroccan Economies? Is there any linkage between trade and financial openness and economic growth for morocco? Does any of the trade and financial openness pose positive or negative effects? If no direct impact revealed, can trade and financial openness still have growth effect under certain fundamental or institutional conditions? Debates over the effects of trade openness and economic growth The theoretical background on trade openness economic growth nexus has its roots in the neoclassical theory of growth. The theory established a strong causality from trade openness to economic growth based on the fact that trade openness influences the decision of various economies to integrate their home economies with the rest of the world, which will in turn boost both export and import thereby increasing specialization and productivity 1 Anoruo and Yusuf 2 documented a bi directional causality between economic growth and trade 1 Shahbaz, M. (2009) A reassessment of finance growth nexus for Pakistan: Under the investigation of FMOLS and DOLS techniques. Journal of Applied Economics, 1, 65 80. Shahbaz, M. (2012) Does trade openness affect long run growth? Cointegration, Causality and Forecast Error Variance Decomposition Tests for Pakistan (MPRA Paper No. 37391) Retrieved March 16, 2012, 10:47 UTC, from http:/mpra.ub.uni
Elkilali Abderrazak Chegri Badreeddine Mohamed Najib Eloualidi
158236870
THE ROLE OF ENTREPRENEURSHIP AS THE DRIVER OF ECONOMIC GROWTH
Centria University of Applied Sciences Date April 2018 Author Folarin Ogunlana Degree programme Business Management Name of thesis THE ROLE OF ENTREPRENEURSHIP AS THE DRIVER OF ECONOMIC GROWTH Instructor Eija Torkinlampi Pages 40 4 Supervisor Ann Christine Johnsson This study examined the role of entrepreneurship as the driver of economic growth. The study also analysed challenges faced by business start ups or small and medium enterprises (SMEs) The write up was inspired by a statement from the finance minister of Nigeria after National Bureau of Statistics (NBS) disclosed Nigeria economy was in a recession. Kemi Adeosun said the country was in "its worst possible time" inflation rate shrank at 17.1 percent, GDP contracted by 2.06 percent and the economy by 0.36 percent. Furthermore, crude oil price had gone down all time low, and for an economy that depends solely on oil export for revenue, there is a need for revenue alternative. The search for alternative revenue was why the author seeks to find out what role entrepreneurship can play in bringing the nation out of economic recession and sustain self sufficient economic growth for the country. As a result of the absence of sequential data related to entrepreneurship and sustainable economic growth in Nigeria, the narrative textual case study method was used to gather information. A selfdesigned questionnaire was used to gather additional information analysed in simple percentages. The study found entrepreneurship can play a significant role in achieving economic growth for the country to overcome her economic crisis. Entrepreneurship can generate employment, innovation, increase production, and diversify the economy source of revenue while fostering the development of small and medium enterprises in Nigeria. This study proposed there should be proper policy coordination and stability, provision of necessary infrastructure, and reforms in the educational curriculum to orientate people to be self reliant. When the country has flourishing micro SMEs or startups, gainful employment will be created, wealth created will be distributed evenly, the economy will have developed and gradually will move out of her economic crisis.
Fo Ogunlana
55528791
Public Spending and Economic Growth in Developing Countries: a Synthesis
The purpose of this study is to critically analyze the theorical and empirical literature on the relationship between public expenditures and economic growth. This relationship has been source of controversy with liberal economists, Keynesians and proponents of endogenous growth. Liberal theories promoted self regulating markets mechanisms. But these theories have also revealed the conditions of state intervention in the economy. According to Keynes, unemployment is not only linked to labor market. It is linked to other markets and especially to finance. Keynes advocated state intervention via public expenditure. That intervention should take two dominant forms, namely the economic policies in favor of investment and income redistribution policies. Robert Barro showed the contribution of public spending to economic growth, with particular emphasis on public infrastructures. He argued that government spending on infrastructure investment improves private companies' productivity. Thus, it causes increasing return to scale, in the long run. He recommended therefore its funding through taxation. The theories listed above focused on the necessity of state intervention in the economy. They addressed indirectly the impact of public spending on economic growth. Nevertheless, it should be stressed that the evolution of public spending may depend on economic growth. Adolph Wagner showed that public expenditures increase more than proportionally in relation to economic growth. Numerous empirical studies tested the relationship between the two variables in developing countries. These studies involved the level of public spending and its composition. In both cases, the results are controversial. A number of studies confirmed Wagner' law; other studies validated the Keynesian assumption. Other studies rejected both Wagner's law and Keynesian assumption. Keys words: National Government Expenditure, Public Economics, Public Expenditure, Public Finance, economic growth, Developing countries. JEL Classification: H50, H54, O10, O4. (c) The Authors, 2018. This article is published with open access at Sumy State University.
Kouakou Kouassi
199106336
The Influence of China's Population Aging on Economic Growth
Population aging is one of the common problems facing the world today and has become an important factor restricting economic growth. China's population aging shows basic characteristics such as rapid growth of aging, "aging before getting rich" and the number of venerable aged population increasing. The impact of population aging on economic growth is mainly reflected in the reduction of supply of working age labor, the reduction of labor productivity, the blocking of upgrades of industrial structure, and the reduction of the efficiency of investment in physical and human capital, etc. It is suggested to vigorously develop aging industries, improve labor efficiency and quality, optimize and upgrade industrial structure, and accelerate the flow of labor resources, so as to cope with the problem of population aging in China and promote rapid economic growth. 1. The basic status of China's aging population 1.1 The rapid development of population aging The China Statistical Yearbook (2017) tells that the total population of China at the end of 2016 was 1.38 billion, ranking first in the world and the second largest economy in the world. However, with the stability and rapid development of the economy, China's population is aging. In 2016, the total population of China aged 65 and over reached 150.3 million, accounting for 10.8% of the country's total population. It is known that China's population is rapidly aging and is expected to grow more rapidly. The number of population at 65 years old and above in China is also the largest in the world. The speed of population aging in China is following Japan which is the fastest aging country (24 years) higher than the United Kingdom (45 years) Switzerland (50 years) the United States (65 years) and France (115 years) 1.2 The status of "aging before getting rich" is obvious In developed countries such as the United States, Japan, and the United Kingdom, when the population is aging, its economy was already at a relatively developed level. When China entered the period of population aging, comparing with other countries, the level of economic development (per capita GDP) was still at a low level. As a developing country, the aging in China shows a state of "aging before getting rich" In Japan, for example, when the proportion of the elderly population aged 65 and over is 7% 10% and 14% respectively, the corresponding per capita GDP was as high as USD 1967.64, USD 11,335.32, and USD 38,555.49 (Zheng, Lin Chen, 2014) Although China has become the second largest economy, the per capita GDP of China is far behind Japan. As early as 2000, the proportion of the population aged 65 years and above of the total Chinese population reached aging dividing line as 7% the per capita GDP was only USD 956, and there was a big gap comparing with Japan (Zhai Zheng, 2016) 1.3 The growth of the venerable aged population is faster The venerable age defined in this article refers to people aged 80 years and older. With the significant improvement in medical treatment and care, the average life expectancy of human beings has increased. China currently accounts for a large proportion of the elderly population aged 65 and over, and the proportion of elderly people aged 80 and over is rising. According to the 2018 International Conference on Economics, Finance, Business, and Development (ICEFBD 2018) Copyright (c) (2018) Francis Academic Press, UK DOI: 10.25236/icefbd.18.092 437 statistics of the National Bureau of Statistics (2016) at the end of 2016, the total number of elderly people aged 80 and over in China reached 24,754,300, accounting for 16.5% of the elderly population in the same period, indicating that China's aging is increasing. 2. The main impact of China's aging population on economic growth 2.1 Reduction of the supply of working age labor There are many factors that promote economic growth, and labor is one of the most important factors. China's economy has developed rapidly in recent years and has become the world's second largest economy. A large part of this achievement can be attributed to the abundant labor force in China. China's economic development is mainly based on labor intensive industries, which requires a large amount of labor to support. The labor force is a very important factor to realize the expansion of reproduction as soon as possible. With the population is aging, the labor force is getting less and less, which is not conducive to the development of a country's economy. It is precisely because of the aging of the population that the decline in the working age population has become a trend that will slow down economic growth, which has been verified in developed countries such as Japan and France. Relevant data show that the aging population will cause China's labor force to decline year by year and the labor force rate will fall to 57% in 2030 (Zeng, 2014) In order to minimize the economic impact of population aging, China needs to transform labor intensive industries and upgrade industrial structure. 2.2 Reduced labor productivity The trend of aging population in China has become increasingly serious. With the growing number of elderly people, the number of working age population will be less and less, the average productivity of society will be reduced, and even the average labor quality will be affected. Wang (2017) analyzes the impact of aging on China's economic growth by dividing the labor force into three parts: the young labor force, the middle aged labor force, and the old age labor force. When a country's old age labor force is large, then the ration of elderly labor population of total labor force will rise. It is well known that the working conditions and efficiency of the elderly will be affected by physical conditions and the quality of the elderly labor is not as good as that of younger group. Therefore, the average production efficiency of the society will be affected, thus affecting economic growth. 2.3 The optimization and upgrading of industrial structure is blocked China is currently in a critical period of economic transformation and needs to continuously upgrade its industrial structure. With the increasing number of elderly people in China, the degree of aging is deepening, the economic structure is changing, and the optimization and upgrading of industrial structure must coordinate the balance between economy and population structure. The accelerated development of population aging will also have a certain negative impact on the upgrading of industrial institutions, which is not conducive to industrial layout and will affect the healthy development of China's economy in the long run (Zhai Zheng, 2016) The upgrading of industrial institutions and the development of emerging industries require the cooperation of a large number of laborers. The elderly labor force is more conservative, less accepting new things, and less willing to accept regional transfers, which will be detrimental to industrial upgrading and new industrial transfer. 2.4 Reduced efficiency of investment in materials and human capital The two main directions of capital investment are material capital investment and human capital investment, which is also the main flow of investment and can promote the sustainable development of the economy. As the population aging increases, among the total labor force, the proportion of the elderly labor force rises. Because the physical function of the elderly labor force is declining, and learning ability and work efficiency cannot be the same as that of young group, there will be a slight poor ability of the elderly labor force to master new technologies and new products, which is
Guangtao Zhou
181898729
The impact of financial development, economic growth, corruption and human capital on income inequality: evidence in low and middle income countries
xiv CHAPTER 1 RESEARCH OVERVIEW. 1 1.1 Research Background. 1 1.1.1 Income Inequality in Low and Middle Income Countries. 2 1.1.2 Financial Development in Low and Middle Income Countries. 4 1.1.3 Economic Growth in Low and Middle Income Countries. 6 1.1.4 Corruption in Low and Middle Income Countries. 7 1.1.5 Human Capital in Low and Middle Income Countries. 8 1.1.6 Income Inequality: Is It Fair or Unfair? 9 1.2 Problem Statement. 13 Impact of Financial Development, Economic Growth, Corruption and Human Capital on Income Inequality Undergraduate Research Project vi Faculty of Business and Finance 1.3 Research Objective. 19 1.3.1 General Objectives..19 1.3.2 Specific Objectives. 19 1.4 Research Question. 20 1.5 Hypotheses of Study. 20 1.6 Significance of the Study. 21 1.7 Chapter Layout..22 1.8 Conclusion. 23 CHAPTER 2 LITERATURE REVIEW. 24 2.1 Theoretical Framework. 24 2.2 Review of Literature. 27 2.2.1 Financial Development and Income Inequality. 27 2.2.2 Economic Growth and Income Inequality. 30 2.2.3 Corruption and Income Inequality. 32 2.2.4 Human Capital and Income Inequality. 34 CHAPTER 3 METHODOLOGY. 37 3.1 Data Description. 37 3.1.1 Dependent Variable. 38 3.1.1.1 Income Inequality. 38 3.1.2 Independent Variable. 38 3.1.2.1 Financial Development. 38 3.1.2.2 Economic Growth. 39 3.1.2.3 Corruption. 39 Impact of Financial Development, Economic Growth, Corruption and Human Capital on Income Inequality Undergraduate Research Project vii Faculty of Business and Finance 3.1.2.4 Human Capital. 40 3.2 Data Analysis. 40 3.2.1 Econometric Model. 40 3.3 Econometric Technique. 42 3.3.1 GMM Estimator. 44 3.3.2 Difference GMM and System GMM. 47 3.4 Diagnosis Checking. 49 3.4.1 Sargan Hansen Test. 49 3.4.2 Arellano Bond Serial Correlation Test. 50 CHAPTER 4 DATA ANALYSIS. 51 4.1 Result of POLS, FE, RE Estimation. 51 4.2 Result of Difference GMM Estimation..53 4.3 Result of System GMM Estimation. 55 4.4 Diagnosis Checking. 58 4.4.1 Sargan Hansen Test. 58 4.4.2 Arellano Bond Serial Correlation Test. 59 CHAPTER 5 CONCLUSION. 60 5.1 Summary of Statistical Analyses. 60 5.2 Policy Implication. 61 5.3 Limitation and Recommendation. 63 References. 65 Appendices. 78 Impact of Financial Development, Economic Growth, Corruption and Human Capital on Income Inequality Undergraduate Research Project viii Faculty of Business and Finance LIST OF TABLES Page Table 3.1: Sources of Data 37 Table 4.1: Result of POLS, FE and RE Estimation 51 Table 4.2: Result of Difference GMM Estimation 53 Table 4.3: Result of System GMM Estimation 55 Impact of Financial Development, Economic Growth, Corruption and Human Capital on Income Inequality Undergraduate Research Project ix Faculty of Business and Finance LIST OF FIGURES Page Figure 1.1: Poverty in Low and Middle Income Countries in 2015 2 Figure 1.2: Financial Development in Low and Middle Income Countries 4 Figure 1.3: Economic Growth in Low and Middle Income Countries 6 Figure 1.4: Average Level of Corruption in Various Income Groups of Countries 7 Figure 1.5: Education Attainment in Low and Middle Income Countries 8 Figure 1.6: Average Monthly Household Income and Consumption Expenses 11 Figure 1.7: Global Adult Population and Share of Total Wealth by Wealth Group 13 Figure 1.8: Rural and Urban Inequality 14 Figure 1.9: Crime Rates and Gini Index 16 Figure 2.0: Life Expectancy by Income Level 17 Figure 2.1: Life Expectancy and Income Inequality by country, 2012 18 Impact of Financial Development, Economic Growth, Corruption and Human Capital on Income Inequality Undergraduate Research Project x Faculty of Business and Finance LIST OF ABBREVIATIONS 2SLS Two Stage Least Square AGFI Adjusted goodness of fix index AR (1) First order Autoregression Model AR (2) Second order Autoregression Model BNM Bank Negara Malaysia CPI Corruption FD Financial Development FEM Fixed Effect Model GMM General Method of Moments HC Human Capital IEQ Income Inequality LM Lagrange Multiplier MM Method of Moment OECD Organization for Economic Co operation and Development OLS Ordinary Least Square OPCD Office of Professional and Career Development PVECM Panel Vector Error Correction Model REM Random Effect Model RGDP Economic Growth Impact of Financial Development, Economic Growth, Corruption and Human Capital on Income Inequality Undergraduate Research Project xi Faculty of Business and Finance SEM Structural Equation Modelling SPSS Statistical Package for Social Science Impact of Financial Development, Economic Growth, Corruption and Human Capital on Income Inequality Undergraduate Research Project xii Faculty of Business and Finance LIST OF APPENDICES Page Appendix 1.1: List of Middle Income Countries 78 Appendix 1.2: List of Low Income Countries 79 Appendix 1.3: 53 Middle Income Countries (Sample) 79 Appendix 1.4: 12 Low Income Countries (Sample) 80 Appendix 1.5: Low Income Countries and their Regions 80 Appendix 1.6: Empirical Result of Fixed Effect Estimation 81 Impact of Financial Development, Economic Growth, Corruption and Human Capital on Income Inequality Undergraduate Research Project xiii Faculty of Business and Finance PREFACE This research is submitted to partially fulfil the requirement of Bachelor of Economics (HONS) Financial Economics. This research is supervised by Ms. Vivien Wong Zi Wen. The income inequality has been getting serious and increasing over the time. Therefore, the gap between the income distributions must be concerned and the factors that influence the income inequality must be investigated. This research will determine the relationship between the financial development, economic growth, corruption and human capital with income inequality. This research also provides a result showing the effect of the variables (financial development, economic growth, corruption and human capital) on income inequality in low and middle income countries. Impact of Financial Development, Economic Growth, Corruption and Human Capital on Income Inequality Undergraduate Research Project xiv Faculty of Business and Finance ABSTRACT The purpose of this research is to determine the income effect of financial development, economic growth, corruption and human capital on income inequality in 65 selected low and middle income countries (included 53 middle income countries and 12 low income countries) from the year 1980 to 2015. This study applies GMM estimator to capture the dynamic effect of data and deal with endogeneity problem. System GMM estimator is applied to run the empirical test in this research. The results summarized that RGDP and FD are significant to the income inequality while the HC and CPI are insignificant related to the income inequality. Impact of Financial Development, Economic Growth, Corruption and Human Capital on Income Inequality Undergraduate Research Project Page 1 of 80 Faculty of Business and Finance CHAPTER 1: RESEARCH OVERVIEW 1.1 Research Background Global integration and technology modernization appears to be unstoppable forces of nature that accelerate the improvement of a nation's economic condition. Products, services, and factors of production become mobile in the presence of freemarket ideology and consolidation of advancement in transportation and communication. This phenomenon has brought enormous profit to investors and entrepreneurs due to higher production efficiency and lower transportation cost. According to World Inequality Report 2018, the concentration of income is rising around the world due to globalization and technology modernization and the finding exhibits that the riches
Mei Yee Leong Pui Yee Chong Sheng Hooi Koo Ying Ling Ooi Xinmin Shee
21746384
Financial Development and Economic Growth A Case of Botswana 1980 2014
The study examines the long run and the short run relationship between bank and stock market developments and economic growth in Botswana using annual data over the period 1980 2014. Simple indices for bank development and for stock market development were constructed to proxy financial development in these sectors. The study used the ARDL approach is applied to test for the existence of the long run relationship. Granger causality was also used to test the direction of the relationship and E views 8.0 to run the ARDL model. The results indicate the existence of a positive and statistically significant long run and the short run relationship between stock market development and growth which is consistent with other studies. On the other hand, bank developments were found to have a negative but statistically insignificant long run relationship while in the short run the relationship remained negative but statistically significant. These results are interesting for a low income country like Botswana where banks are expected to have a sizable effect on growth than stock markets. The weak association between bank developments and growth may be a confirmation of inefficient credit allocation by the banks pointing to a poor regulatory environment and lack of supervision by the Central Bank. Investment and government expenditure was also found to contribute positively to economic growth while causality was found to be bidirectional. All in all, results seem to suggest that a stable economic environment coupled with strong institutions is critical for growth in Botswana Key terms: Financial Development (Bank development Stock market Index) Economic Growth 1.0 Introduction The importance of financial development in promoting economic growth has been a major concern in development economics. Generally, there exists an overwhelming unanimity that well functioning financial intermediaries have played a significant role in economic growth (King and Levine, 1993a,b; Levine and Zervos, 1998; Levine et al. 2000a,b; Wachtel 2003, Seetanah, 2007 in Seetanah, Ramessur and Rojid, 2009) The critical role played by the financial sector is when it is able to effectively direct financial resources toward the sectors that demand those most. A developed financial sector promotes a better allocation of the financial resources into productive use and contributes positively to the economic growth (Grassa and Gazdar, 2013) The Nexus is also empirically investigated by identifying the causal relationship between financial development and economic development as done by several authors (King and Levine,1993a,b;Toda and Yamamoto,1995; Khan and Senhadji, 2000; Levine et al. 2000) and Giri (2015) The authors involved generally accepted that financial sector plays a critical role in expediting economic growth by mobilizing savings, facilitating payments, trading of goods and services and promoting the efficient allocation of resources. By mobilization of savings, financial intermediaries also increase the availability of funds in the market for lending for both large and small businesses which in tur n create employment for the citizens. It is also found that financial development reduces information asymmetry and price risk and it is crucial for economic growth (Murinde, 2012) According to Eita (2007) Botswana was initially an underdeveloped economy which used South African currencies before and after its independence. This is because the country was a member of the Rand Monetary Area (RMA) and this membership did not give the government any monetary independence because monetary policy was conducted by the South African Reserve Bank. Botswana terminated its membership of the RMA in 1976 and established its own central bank and currency, the Pula (Ahmed, 2006) There were only two commercial banks which were foreign owned namely Standard Chartered and Barclays. These banks were incorporated locally after the establishment of the central bank, but they were free to make their own decisions. As Akinboade (1998) stated, the economy of Botswana recorded a high growth rate of more than 10 percent per year for most of the 1980s because of the increase in diamond revenue. This rapid increase in economic growth led to a rapid expansion of the financial system and the two commercial banks expanded to more than thirty branches or agencies. International Journal of Management Sciences and Business Research, April 2018 ISSN (2226 8235) Vol 7, Issue 4 http:/www.ijmsbr.com Page 2 To accommodate other players in the market, the Botswana Stock Market (BSE) established in 1989 with the mandate to oversee portfolio investment institutions which were allowed to buy shares on generous terms. However, local institutions were subjected to exchange control regulations for investing up to 50 percent of their assets abroad. According to Ahmed (2006) the exchange control measures penalized local savers because foreign financial assets generally offer a higher real rate of return than those denominated in Pula. Local investors were denied the opportunity to increase their wealth and diversify their risks. Despite the fact that Botswana experienced rapid economic growth, financial institutions did not expand as expected. According to Jefferis (1995) and Ahmed (2006) since independence, the financial sector has been dominated by two major commercial banks which concentrated on short term segments of the market. These banks did not offer much development to enhance long term investment for a considerable period. Also, there was a limited range of financial instruments and capital market for equities and long term, and short term debt instruments did not exist before the establishment of the Botswana Stock Market. The government recognized that although excess liquidity existed, there was a demand for long term financing which was not satisfied. This constituted a structural weakness in the financial system. Since then, the financial system of Botswana has grown by leaps and bounds. To investigate the backdrop of these investment activities, very few studies on bank and stock market developments and economic growth in Botswana have been carried out. Hence this prompted this research to establish the impact of this development on the rate of growth of the economy. 2.0 Theoretical literature review. 2.1.1 Exogenous Growth theories In the traditional neoclassical growth models independently developed by Solow (1956) and Swan (1956) the output of an economy grows in response to larger inputs of physical capital and labor. Other economic variables such as human capital and financial institutions are excluded in these models. The standard Solow Cobb Douglas production function is thus written as; Y AK a L b where Y is the output and depends on capital (K) Labour (L) as well as productivity (A) a and b are production elasticities with a b =1. (i) Where denotes time, is the elasticity of output with respect to capital, and represents total production, is capital and L is labour. refers to laboua r augmenting technology or knowledge| thus represents total production. All factors of production are fully employed and initial values. and are given.The number of workers, ie labour as we,,ll as the level of technology grow exogenously at rates and repectively. However, the Mankiw, Romer, and Weil (1992) model marked an important contribution to the debate on the nature of economic growth. In particular, it was argued that the observed empirical shortcomings of the neoclassical Solow growth model 1 in particular a large underestimate of the difference in incomes between advanced and developing countries unless capital is assumed to have a far larger impact on output than its income share implies were due to the omission of human capital. Effectively, Mankiw et al. (1992) argued that the traditional Cobb Douglas formulation should include human capital variable and should be rephrased as;
Muchingami Lovemore
187095552
Impact of Private Domestic Investment on Economic Growth in Nigeria
One of the major economic problems in the developing nation like Nigeria is low domestic investment finance. The vicious cycle of low domestic investment finance as a result of low savings lead to low capital formation and this has become a cankerworm which has eaten deep into the fabric of the Nigerian economy. Despite government policies such as export promotion and bank recapitalization policy at boosting investment, all these efforts have not yielded appreciable results in order for domestic investment to increase economic growth. It is against this back drop that the study examined the impact of private domestic investment on economic growth in Nigeria. The objectives of this study were to; examined how private domestic investment and private sector credits from financial institution affect economic growth. The study covered the period of 1980 2016 with the analytical techniques relying on Kwiatkowski Phillips Schmidt Shin (KPSS) stationarity and Johansen system cointegration tests as well as Error Correction Mechanism (ECM) The result of the KPSS stationarity test showed that the variables are first difference stationary. More so, the Johansen test results for cointegration indicated that the variables are cointegrated and as such have the capability of moving together in the long run. The parsimonious Error Correction Short Research Article Bidemi et al. AJEBA, 9(2) 1 9, 2018; Article no.AJEBA.45698 2 Mechanism showed that private domestic investment is significantly related to economic growth. The result indicated that holding other variables, 10 percent increase in the current value of private domestic investment, on the average, stimulates economic growth by 2.08 percent. Similarly, the value of financial sector credit to private sector is positively related to economic growth. On the average, a percent increase in financial sector credit to private sector boost growth in Nigeria by 2.27 percent. Owing to the findings, it is recommended among others that Private domestic investment should be promoted across key sectors of the economy, especially agriculture and manufacturing activities in order to stimulate rapid and sustained growth in Nigeria.
Joseph Bidemi Obayori M Robinson Sunday Omiekuma Paul Omekwe