FINANCIAL INSTRUMENTS AND THEIR IMPACT ON THE GROWTH OF INVESTMENT – A STUDY ON THE LIBYAN MARKET

Purpose: The aim of this study was to explore the relationship between Financial instruments and growth of investment. Design/Methodology/Approach: The distributed questionnaires include 300 clients from banks and companies represented in Tripoli. The data collected was analyzed using SPSS- SEM. Results: The obtained results showed that indicated that, despite the modest progress made in a very short time regarding all indicators which the paper calculated, however, it can be said that Libyan stock market remain largely underdeveloped, small and relatively inefficient. Its market capitalization to GDP is very low and investors have no access to long-term capital. In addition, the market still has very low liquidity and investors still have a limited choice of financial instruments and face liquidity problems. Originality/Value: This study contributes significantly to the importance of diversity in the use of financial instruments that help in the growth of investment. The study added a new discussion, which is the disclosure that financial instruments affect the growth of domestic investment, especially by easing financing restrictions, which allows companies to increase investment in response to increased demand for production. The main finding is that the structure of the financial system does not have an independent effect on investment growth, in the sense that it does not enhance the response of investment to changes in production, whereas financial development makes investment more responsive to output growth. Thus, instead of promoting a specific type of financial instrument, countries should implement policies that reduce transaction costs in financial intermediation and enforce the rights of creditors and investors. This will facilitate the development of banks and stock markets, which will stimulate the growth of domestic investment. JEL: D53; G14; O1