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Exploring the Role of Local Financial Markets in the Portfolio Investment-Growth Nexus

In recent times, foreign portfolio investment inflows have been considered pivotal to sub-Saharan Africa's growth (SSA) as they help enhance liquidity and make a substantial fund available for investment. However, some scholars have stressed that the sustainable inflows of portfolio investments and their impact on growth depend on the extent to which the recipient country can develop its local financial markets. As a result, this chapter aims to determine the moderating role of local financial markets in facilitating the effects of portfolio investments on economic growth in 28 SSA between the period 1995-2018. The study employed the system generalized method of moments (SGMM) and found that portfolio investments positively and significantly impact economic growth. However, the study observes that the interaction between portfolio investments and financial market development is negative and significant, presupposing that the relationship between portfolio investment and economic growth is not contingent on local financial markets.