Development finance institutions (DFIs), political conditions, and foreign direct investment (FDI) in Sub-Saharan Africa

Carmen Berta C. De Saituma Cagiza and Ilidio Cagiza

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Abstract: This study investigates the dynamic relationship between development finance institutions (DFIs), foreign direct investment (FDI), and economic development in Sub-Saharan Africa (SSA) from 1990 to 2018, using a quantitative panel dataset of annual data for five SSA countries (Nigeria, Ghana, Kenya, South Africa, and Zimbabwe) and a fixed-effects model estimated in STATA. Specifically, the analysis examines whether DFIs enhance FDI inflows, thereby promoting economic growth and contributing to the achievement of the Sustainable Development Goals (SDGs). The findings indicate that although DFIs have a theoretically positive impact on FDI, this relationship is not statistically significant across the sample, suggesting contextual dependencies influenced by regional economic variations. The study also analyzes how economic growth, trade openness, inflation, political stability, and the rule of law influence this nexus, elucidating their roles in shaping investment climates. A sectoral analysis indicates that DFI investments in infrastructure, agribusiness, and finance significantly affect FDI, with infrastructure having the greatest impact owing to its foundational role in economic systems. This research contributes by linking DFIs with FDI in SSA in a panel setting, thus providing a framework for policymakers to strengthen institutional and macroeconomic conditions to optimize the impact of DFIs on FDI and, ultimately, on sustainable development. The findings underscore the need for targeted policies to address regional disparities and enhance DFI effectiveness in fostering sustainable growth.

Date: 2025-10
New Economics Papers: this item is included in nep-fdg
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Published in Journal of Economics and International Finance, 17(1), 1-12 (2025)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2510.16472

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