Skip to main content

Correlative and asymmetric effects of information technology on capital flows

Abstract

The study in this paper investigates how information technology (IT), directly and indirectly, affects capital flows to Sub-Saharan African countries. It also examines the asymmetric effects of IT on capital flows. The general method of moments methodology is employed to estimate a decomposed model of capital flows, which produced results that clearly show the correlative effect of IT is relatively more significant, compared to the effects of other explanatory variables. Furthermore, the results reveal appreciable asymmetric effects of IT on capital flows and the components, with the effects found to be uneven and dissimilar. It is also revealed that capital flows and the components reinforced themselves over time. The salutary effects of IT on capital flows, therefore, need to be sustained. In order to achieve this goal, economic policies should be fashioned to drive the deepening of IT, stable policy environment, synergy among determinants of capital flows, usage of advanced IT in financial markets, awareness of investment opportunities in a real sector, and application of IT in weak sectors. Such policies are most likely to sustain and improve upon the current trend of capital flows to Sub-Saharan Africa.

This is a preview of subscription content, access via your institution.

Fig. 1
Fig. 2

References

  1. Abramov, A., & Radygin, A. (2015). Long-term portfolio investment: new insight into return and risk. Russian Journal of Economics, 1(3), 273–293

    Google Scholar 

  2. Adelegan, O. J. (2008). Can regional cross-listing accelerate stock market development? Empirical Evidence from Sub-Saharan Africa. IMF Working Paper 08/281. International Monetary Fund

  3. Adeleye, N., & Eboagu, C. (2019). Evaluation of ICT development and economic growth in Africa. Netnomics, 20, 31–53. https://doi.org/10.1007/s11066-019-09131-6

    Article  Google Scholar 

  4. Al-Smadi, M. O. (2018). Determinants of foreign portfolio investment: the case of Jordan. Investment Management and Financial Innovations, 15(1), 328–336

    Google Scholar 

  5. Anggitawati, D., & Ekaputra, I. A. (2020). Foreign portfolio investment flows and exchange rate: evidence on Indonesia. Journal of Emerging Markets Finance and Trade, 56(2), 260–274

    Google Scholar 

  6. Arain, H., Han, L., & Zhang, L. (2017). Effects of information systems and technology on foreign direct investment in developing countries. International Journal of e-Education, e-Business, e-Management and e-Learning, 7(2), 146–152

    Google Scholar 

  7. Ayadi, F. S., & Ayadi, F. O. (2008). The impact of external debt on economic growth: a comparative study of Nigeria and South Africa. Journal of Sustainable Development in Africa, 10(3), 234–264

    Google Scholar 

  8. Blundell, R., Griffith, R., & Windmeijer, F. (2002). Individual effects and dynamics in count data models. Journal of Econometrics, 108(1), 113–131

    Google Scholar 

  9. Brun, J. F., & Gnangnon, S. K. (2017). Does trade openness contribute to driving financing flows for development? Economic Research Working Paper 06. World Trade Organization

  10. Caporale, G. M., Ali, F. M., & Spagnolo, N. (2013). Exchange rate uncertainty and international portfolio flows. Discussion Paper 1296. German Institute for Economic Research

  11. Carkovic, M., & Levine, R. (2002). Does foreign direct investment accelerate economic growth? Working paper, Department of Finance, University of Minnesota

  12. Chabat, B., & Kurz, C. (2009). That’s where the money was: foreign bias and english investment abroad, 1866 – 1907. Discussion Paper 972. Economic Growth Center

  13. Chaudhry, I. S., Farooq, F., & Mushtaq, A. (2014). Factors affecting portfolio investment in Pakistan: evidence from time series analysis. Pakistan Economic and Social Review, 52(2), 141–158

    Google Scholar 

  14. Chea, A. C. (2011). Global private capital flows and development finance in Sub-Saharan Africa: exemplary performers, lessons for others and strategies for global competitiveness in the twenty first century. Journal of Sustainable Development, 4(5), 18–31

    Google Scholar 

  15. Chee-Keong, C., Ahmad, Z. B., & Zulkomain, Y. (2010). Private capital flows, stock market and economic growth in developed and developing countries: a comparative analysis. Japan and World Economy, 22(2), 107–117

    Google Scholar 

  16. Delechat, C., Kovanen, A., & Wakeman-Lin, J. (2008). Sub-Saharan Africa: private capital fueling growth. IMF survey. International Monetary Fund

    Google Scholar 

  17. Dong, D. (2021). The impact of financial openness on public debt in developing countries. Empirical Economics, 60, 2261–2291. https://doi.org/10.1007/s00181-020-01839-x

    Article  Google Scholar 

  18. Dorsey, T., Tadesse, H., Singh, S., & Brixiova, Z. (2008). The landscape of capital flows to low-income countries. IMF Working Paper 08/51. International Monetary Fund

  19. Edo, S. E. (2018). Private capital inflows and stock market interface in Sub-Saharan Africa. International Review of Economics, 65(4), 507–538

    Google Scholar 

  20. Edo, S. E., & Monye-Emina, A. I. (2005). Foreign private investment and growth of manufacturing sector: The Nigerian economy in perspective. Journal of Social and Economic Policy, 2(2), 223–239

    Google Scholar 

  21. Edo, S. E., Okodua, H., & Odebiyi, J. (2019). Internet adoption and financial development in Sub-Saharan Africa: evidence from Nigeria and Kenya. African Development Review, 31(1), 144–160

    Google Scholar 

  22. Ekeocha, P. C., Ekeocha, C. S., Malaolu, V., & Oduh, M. O. (2012). Modelling the long run determinants of foreign portfolio investment in Nigeria. Journal of Sustainable Development, 3(8), 194–205

  23. French, J. J. (2011). The dynamic interaction between foreign equity flows and returns: evidence from the Johannesburg Stock Exchange. The International Journal of Business and Finance Research, 5(4), 45–56

    Google Scholar 

  24. Gani, A., & Sharma, B. (2003). The effects of information technology achievement and diffusion on foreign direct investment. Perspectives on Global Development and Technology, 2(2), 161–178

    Google Scholar 

  25. Gelman, M., Jochem, A., & Reitz, S. (2013). Real financial market exchange rates and capital flows. Discussion Paper 50. Deutsche Bundesbank

  26. Global Finance. (2020). Ranking of national technological strength. Technology advancement report. Global Finance Network

    Google Scholar 

  27. Goel, N., & Singh, G. (2018). Role of technology and regulations in capital flows to India. Australasian Accounting and Finance Journal, 12(2), 87–103

    Google Scholar 

  28. Hadri, K. (2000). Testing for stationarity in heterogeneous panel data. The Econometrics Journal, 3(2), 148–161

    Google Scholar 

  29. Haider, M. A., Khan, M., & Abdullahi, E. (2016). Determinants of foreign portfolio investment and its effects on China. International Journal of Economics and Finance, 8(12), 143–150

    Google Scholar 

  30. Häusler, G. (2002). The globalization of finance. Finance and Development, 39(1), 1–6

    Google Scholar 

  31. Henry, B. P. (2000). Do stock market liberalizations cause investment booms? Journal of Financial Economics, 58(1), 301–334

    Google Scholar 

  32. Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53–74

    Google Scholar 

  33. Irving, J. (2000). Africa’s struggling stock exchanges: boost to economic development or costly irrelevance? African Recovery, 14(3), 25–28

    Google Scholar 

  34. Kadariya, S. (2012). Factors affecting investor decision making: a case of nepalese capital market. Journal of Research in Economics and International Finance, 1(1), 16–30

    Google Scholar 

  35. Kalim, R., & Shahbaz, M. (2009). Impact of foreign direct investment on stock market development: the case of Pakistan. Conference Paper, 9th Global Conference on Business and Economics. Cambridge University

  36. Khan, F., Afrin, F., & Rahman, M. A. (2015). Factors influencing investors’ decisions in stock market of Bangladesh. Journal of Finance and Accounting, 3(6), 198–204

    Google Scholar 

  37. Kinda, T. (2010). Increasing private capital flows to developing countries: the role of physical and financial infrastructure in 58 countries, 1970-2003. Applied Econometrics and International Development, 10(2), 57–72

    Google Scholar 

  38. Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24

    Google Scholar 

  39. Litan, R. E., Pomerleano, M., & Sundaraja, V. (2003). Domestic capital market reform and access to global finance: making markets work. In: Future of Domestic Capital Markets in Developing Countries. Brookings Press

    Google Scholar 

  40. Loungaui, P., & Razin, A. (2001). How beneficial is foreign direct investment for developing countries? Finance and Development, 38(1), 6–9

    Google Scholar 

  41. Luca, O., & Spatafora, N. (2012). Capital inflows, financial development, and domestic investment: determinants of inter-relationships. IMF Working Paper 12/120. International Monetary Fund

  42. Lusinyan, L. (2002). International capital flows, economic growth and financial markets efficiency. EUI Working Paper 02/20. European University Institute

  43. Mody, A., & Murshid, A. P. (2011). Growth in international capital flows: the role of volatility regimes. IMF Working Paper 11/90. International Monetary Fund

  44. Moreno, R. (2000). What explains capital flows. FRBSF economic letter. Federal Reserve Bank

    Google Scholar 

  45. Nyang’oro, O. (2013). Portfolio flows and stock market performance in Kenya: Case of Nairobi Securities Exchange. Conference Proceedings. Centre for the Study of African Economies

  46. Pedroni, P. (2004). Panel cointegration: asymptotic and finite sample properties of pooled time tests with an application to PPP hypothesis. Econometric Theory, 20(3), 597–625

    Google Scholar 

  47. Portes, R., Rey, H., & Oh, Y. (2001). Information and capital flows: The determinants of transactions in financial assets. European Economic Review, 45(4–6), 783–796. https://doi.org/10.1016/S0014-2921(01)00138-6

    Article  Google Scholar 

  48. Psalida, E., & Nakagawa, S. (2007). The quality of domestic financial markets and capital inflows. Global financial stability report. International Monetary Fund

    Google Scholar 

  49. Ralhan, M. (2006). Determinants of capital flows: a cross-country analysis. Econometrics Working Paper 06/01. University of Victoria Economics Department

  50. Rashid, A., & Khalid, A. (2017). Impact of exchange-rate volatility on foreign portfolio investment in Pakistan. NUML International Journal of Business and Management, 12(2), 88–102

    Google Scholar 

  51. Saha, M. (2009). Stock market in India and foreign institutional investors: an appraisal. Journal of Business and Economic Issues, 1(1), 1–15

  52. Seetharaman, A., Niranjan, I., Patwa, N., & Kejriwal, A. (2017). A study of the factors affecting the choice of investment portfolio by individual investors in Singapore. Accounting and Finance Research, 6(3), 153–168

    Google Scholar 

  53. Sevil, G., Ozer, M., & Kulah, G. (2012). Foreign investors and noise trade in Istanbul stock exchange. International Journal of Business and Social Science, 3(4), 93–101

    Google Scholar 

  54. Siddiqi, M. (2011). A compelling case for investing in Africa. African Business, 76(2), 40–41

    Google Scholar 

  55. Sula, O., & Willet, T. D. (2006). Reversibility of different types of capital flows to emerging markets. RePEc archive paper 384. Research Papers in Economics

    Google Scholar 

  56. Summers, L. (2000). International financial crises: causes, prevention, and cures. American Economic Review, 90(2), 1–16

    Google Scholar 

  57. Tafirenyika, M. (2011). Information technology super-charging Rwanda’s economy. Africa Renewal, April 2011, 18-20

    Google Scholar 

  58. Tahmad, A. M. I, & Adow, A. (2018). The impact of trade openness on foreign direct investment in Sudan by sector in the 1990-2017 period: an empirical analysis. Economic Annals, 172(7), 14–21

    Google Scholar 

  59. Valls, J., Arbussà, A., & Torres, R. (2000). The impact of rapid technological change in information technology on the stability of world trade and international capital flows. Working Paper on Scientific and Technological Options. European Parliament

  60. Waweru, N. M., Munyoki, E., & Uliana, E. (2008). The effects of behavioral factors in investment decision-making: a survey of institutional investors operating at the Nairobi Stock Exchange. International Journal of Business and Emerging Markets, 1(1), 24–41

  61. Weber, K., Davis, G. F., & Lounsbury, M. (2013). Policy as myth and ceremony: the global spread of stock markets, 1980-2005. Academy of Management Journal, 52(6), 1319–1347

    Google Scholar 

  62. Wildermann, C. (2010). What drives portfolio investments of German Banks in emerging capital markets? Discussion Paper 2/4. Deutsche Bundesbank

  63. Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data. MIT Press

    Google Scholar 

  64. World Bank. (2011). Sub-Saharan Africa global economic prospects. The World Bank

    Google Scholar 

  65. Xing, Z. (2018). The impacts of Information and Communications Technology (ICT) and e-commerce on bilateral trade flows. International Economics and Economic Policy, 15(2), 565–586

    Google Scholar 

  66. Yartey, C. A., & Adjasi, C. K. (2007). Stock market development in Sub-Saharan Africa: critical issues and challenges. IMF Working Paper 07/209. International Monetary Fund

  67. Zaman, Q., Donghui, Z., Yasin, G., Zaman, S., & Imran, M. (2018). Trade openness and FDI inflows: a comparative study of Asian Countries. European Online Journal of Natural and Social Sciences, 7(2), 386–396

    Google Scholar 

Download references

Funding

The funds for this research were sourced from the personal savings of the authors. No grant was received from funding agencies.

Author information

Authors and Affiliations

Authors

Corresponding authors

Correspondence to Samson Edo or Eseosa Joy Sowemimo.

Ethics declarations

Conflict of interest

This work does not have any conflict of interest, whatsoever. It is original work of the authors.

Additional information

Publisher’s Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Edo, S., Sowemimo, E.J. Correlative and asymmetric effects of information technology on capital flows. Netnomics (2022). https://doi.org/10.1007/s11066-022-09154-6

Download citation

  • Accepted:

  • Published:

  • DOI: https://doi.org/10.1007/s11066-022-09154-6

Keywords

  • Information technology
  • Capital flows
  • Economy
  • Developing countries

JEL Classification

  • D83
  • F32
  • F43
  • O55