Despite a surge of global investor interest in the 1980s and 1990s, Africa has
been bypassed by the massive international capital flowing to developing
economies. Most of the economies in the region didn’t efficiently mobilize
their domestic financial resources either. African countries, particularly
those in Sub-Saharan Africa (SSA) remain the only developing region in which
development assistance flows exceeds private capital flows. Except a few
countries (such as South Africa, Mauritius, Botswana), most of the economies in
the SSA region are not still doing anything good.
These phenomenons can in part be attributed to lack of a well developed
financial sector (such as capital markets, banks, and other financial
institutions) and the poor economic policies and incompetent “institutions” in
African countries.
The purpose of this thesis is to conduct a qualitative research on whether
capital market establishment and development is an alternative towards the
economic growth of least developed countries such as Ethiopia and investigate
the role of institutions towards the establishment, development and performance
of capital markets and identify whether such institutions exist in Ethiopia or
not. In addition the research also integrated the importance of domestic
financial resource (households’ savings) to the performance of capital markets
in Africa.
The result which is based on the review, description and analysis of the
existing literature (theory and empirical studies) suggests that despite the
different thoughts (1. a thought that positively correlates capital markets and
economic growth and 2. a thought that negatively correlates capital markets and
economic growth ) as to the capital market and economic growth linkage; capital
market establishment and development could lead to the economic growth and
prosperity of least developed African countries as well, including Ethiopia
provided that it’s backed by capable institutions of all sorts (rules, laws,
constitutions; social values and norms; fina...
