Private capital inflows and stock market interface in sub-Saharan Africa

The financial market school of thought argues that financial market plays a key role in facilitating capital flows to less developed countries of the world. This school considers stock market a strong and potent channel of attracting and mobilizing capital for development across the globe. The study in this paper is therefore undertaken to determine the validity of this argument, by investigating how the stock market interfaces with other variables to influence capital flows to sub-Saharan Africa. The empirical evidence clearly validates the importance of stock market by showing its direct positive impact on all the components of private capital inflows, an impact that is significantly enhanced by return on investment in the market. The stock market is also revealed to have a maximum threshold that suggests it possesses the capacity to channel a significant proportion of potential capital inflows. These findings point to the importance of raising the level of stock market development in order to attract more capital flows to the region, and indeed the less developed regions of the world.