Bond Market Development, Economic Growth, and the Role of Foreign Investment


The aim of this research was to analyze the relationship among bond market development, economic growth, and foreign investment in several countries. The object of the research was sovereign bond with a sample of some developing countries in Asia, America, Europe, and Africa during the period of 2004–2015. The methods used were Vector Autoregressive (VAR), Vector Error Correction Model (VECM), and Granger causality. The result showed that there are short- and long-run cointegrations in each sample. On the other hand, there is no causality in all sample countries but there is only univariate correlation in Indonesia, Thailand, and Mexico.



Keywords: sovereign bond, bond market development, economic growth, and foreign investment

[1] Abbas, S. M. A. and Christensen, J. E. (2010). The role of domestic debt markets in economic growth: An empirical investigation for law-income countries and emerging markets. IMF Staff Papers, vol. 57, no. 1.

[2] Anwar, S. and Sun, S. (2011). Financial Development, foreign investment and economic growth in Malaysia. Journal of Asian Economics, vol. 22, pp. 335–342.

[3] Beltran, D. O., Thomas, C. P., Beltran, D. O., et al. (2012). Foreign Holdings of US Treasuries and US Treasury Yields (1041).

[4] Comelli, F. (2012). Emerging market sovereign bond spreads: Estimation and backtesting. Emerging Markets Review, vol. 13, no. 4, pp. 598–625. Retrieved from https: //

[5] Dimic, N., Kiviaho, J., Piljak, V., et al. (2016). Impact of financial market uncertainty and macroeconomic factors on stock-blond correlation in emerging markets. Research in International Business and Finance, vol. 36, pp. 41–51.

[6] Ebeke, C. and Yinqiu, L. (2015). Local currency emerging market bond yields and foreign holdings - A fortune or misfortune? Journal of International and Finance, vol. 59, pp. 203–219.

[7] Kapingura, F and Markheta-Kosi, P. The causal relationship between the bond market development and economic growth in Africa: Case study of South Africa. Mediterranean Journal of Social Sciences, vol. 5, no. 3.

[8] Iamsiraroj, S. and Ulubaşoğlu, M. A. (2015). Foreign direct investment and economic growth: A real relationship or wishful thinking? Economic Modeling, vol. 51, pp. 200– 213.

[9] Kolapo, F. T. and Adaramola, O. (2012). The impact of the Nigerian Capital Market on economic growth (1990-2010). International Journal of Developing Societies, vol. 1, no. 1, pp. 11–19.

[10] Lucey, B. M. and Zhang, Q. (2011). Financial integration and emerging markets capital structure. Journal of Banking & Finance, vol. 35, pp. 1228–1238.

[11] Matei, I. (2015). Euro zone bond market and economic growth: Evidence from a time series analysis, in Recent Developments in Alternative Finance: Empirical Assessments and Economic Implications, pp. 39–51.

[12] Peiris, S. J. (2010). Foreign Participation in Emerging Markets’ Local Currency Bond Markets, pp. 1–19. Retrieved from 1586677

[13] Vithessonthi, C. and Kumarasinghe, S. (2016). Financial development, international trade integration, and stock market integration: Evidence from Asia. Journal of Multinational Financial Management.

[14] Vo. (2009). International financial integration in the Asian bond markets. Research in International Business and Finance, vol. 23, pp. 90–106.