This paper evaluates the dynamic causal relationship between financial development, savings, investment and economic growth in Botswana from 1976-2014 by employing a multivariate causality model. Results reveal that it is chiefly investment that drives the bank-related and stock exchange-based financial sectors in the short run. Stock exchange-based financial development drives bank-related financial development and savings in both the short run and the long run. While, savings are found to Granger-cause investment. Economic growth Granger-causes investment and savings, both, in the short run and long run. Further, only bank-related financial development is found to Granger-cause economic growth in Botswana.

This article reviews the theoretical and empirical literature on the causal relationship between financial development and investment. Based on the literature considered, it can be concluded that there is little consensus to date on the direction of causality between financial development and investment. The study concludes that most of the research done on the causal relationship between financial development and investment is highly skewed towards assessing the causal relationship between the bank‑based side of financial development, as compared to the market‑based side of financial development. Given the number of studies assessed, the causal relationship between financial development and 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.

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.

This paper examines the causal relationship between financial development and investment in Botswana between 1976 and 2014. The autoregressive distributed-lag (ARDL) bounds testing approach and a trivariate Granger-causality model are employed. In order to capture the breadth and depth of the financial sector in the study country, both bank- and market-based financial development indices are used. The results show that there is a bidirectional Granger-causal relationship between both bank-based and market-based financial development and investment in the short run. In the long run, a distinct causal flow is found to prevail only from investment to bank-based financial development. Given the findings, the causal relationship between financial development and investment is not a given as implied in economic literature. For Botswana, policies that enhance both investment and market-based financial development should be employed in the short run.

This study investigates the impact of financial development on investment in South Africa between 1976 and 2014. The model estimated is based on the flexible accelerator investment model. Composite indices for bank-based and market-based financial development indicators are used as explanatory variables. The estimated model postulates that both bank-based financial development and market-based financial development have an acceleratorenhancing effect on investment. Results show that market-based financial development has a positive impact on investment in the long run, while bank-based financial development has a negative effect in the short run. Implications are that, for South Africa, market-based financial development has a positive accelerator-enhancing effect on investment in the long run. In contrast, bank-based financial development is found to have a negative accelerator enhancing effect on investment in the short run.