Liberalization, Stock Market Development and Investment Efficiency in Africa

Abstract

Whereas there is extensive theoretical literature linking stock markets and investment efficiency, little empirical attention has been accorded to this relationship, particularly for African economies. Using the recently developed dynamic panel data estimators, this study explores the empirical relationship between stock market development and investment efficiency in Africa. The study used two samples, categorized as relatively developed stock markets and relatively underdeveloped stock markets. The findings suggest that stock market development matters for investment efficiency in relatively developed stock markets in Africa while in relatively underdeveloped stock markets, no consistent results are obtained. The study concludes that African stock markets can boost investment efficiency by enhancing privatization and diversifying financial instruments.

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