Developing Local Currency Bond Markets for Long-term Development Financing in Sub-Saharan Africa

Berensmann, Kathrin; Dafe, Florence; Volz, Ulrich

Abstract

This article discusses the role that local currency bond markets (LCBMs) can play in the long-term financing of sustainable development of Sub-Saharan African (SSA) economies and presents an empirical analysis of the factors which may hinder or promote the development of such markets in SSA. Using a new dataset for 27 SSA countries, our findings support earlier research on SSA and other regions, showing that LCBM development is related to country size, larger banking systems, greater trade openness and better regulatory frameworks and the rule of law. Foreign investor participation broadens the investor base and can give a boost to LCBM development, yet it may also increase volatility of international capital flows. Hence, with view to the experience of emerging economies in other regions, capital market liberalisation should be pursued only very cautiously and in pace with solid financial and institutional development.

Citation

Berensmann, K., Dafe, F., & Volz, U. Developing Local Currency Bond Markets for Long-term Development Financing in Sub-Saharan Africa. Oxford Review of Economic Policy, 31(3-4), 350-378. https://doi.org/10.1093/oxrep/grv032

• Journal Article Type: Article
• Online Publication Date: Dec 9, 2015
• Deposit Date: Sep 1, 2015
• Publicly Available Date: Oct 1, 2019
• Journal: Oxford Review of Economic Policy
• Print ISSN: 0266-903X
• Electronic ISSN: 1460-2121
• Publisher: Oxford University Press
• Peer Reviewed: Peer Reviewed
• Volume: 31
• Issue: 3-4
• Pages: 350-378
• DOI: https://doi.org/10.1093/oxrep/grv032
• Keywords: Local currency bond markets; long-term finance; debt; Sub-Saharan Africa