Abstract
This article summarises the empirical literature on the impact of financial development on investment. It presents a topical analysis of empirical research that focuses mainly on the interaction between financial development and investment, determinants and measurement of both financial development and investment, and empirical findings on the relationship between the two variables under discussion. The study concludes that most of the research done on the relationship between financial development and investment is highly skewed towards assessing the relationship using mostly bank-based financial development indicators, as compared to the market-based financial development indicators. Given the number of studies assessed, the impact of financial development on investment appears to be inconclusive, at best. Moreover, the study shows that the relationship between these two macroeconomic variables seems to differ from country to country; it is dependent on the proxies used to measure the level of financial development, as well as the methodology employed.
Highlights
The finance-investment nexus has received extensive consideration in economic circles
Financial liberalisation positively impacts the efficiency of investment
Financial development positively impacts the efficiency of investment
Summary
The finance-investment nexus has received extensive consideration in economic circles. Most of the studies that evaluated this relationship had the main objective of evaluating the finance-growth nexus while taking investment as a mainly positive conduit to either financial development or economic growth, or both. There has been no study to date that has evaluated the accomplishments of economists on this particular instrumental topic It is, against this background that this study is commissioned to address the extensive knowledge gap in the evaluation of the finance-investment impact relationship. Given the aforementioned and the focus of this study, this paper is organized only around the theoretical models and empirical studies that scrutinize, indirectly and directly, the relationship between financial development and investment. The third section examines the empirical studies on the finance-investment impact relationship.
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
