Complementary relationship between foreign direct investment, financial development threshold and economic growth: evidence from Sub-Saharan Africa

Rajab Bouzayani and Zouheir Abida
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Rajab Bouzayani: University of Sfax, Tunisia
Zouheir Abida: University of Sfax, Tunisia

Theoretical and Applied Economics, 2025, vol. XXXII, issue 2(643), Summer, 71-86

Abstract: The purpose of this paper is to determine the mediating effect of financial development in foreign direct investment (FDI) and the link of growth and to establish the threshold of financial development in 24 sub-Saharan African countries over the period 1995-2022. This paper found that FDI and the development of the financial system have no significant impact on economic growth in sub-Saharan Africa. However, when the interactive term foreign direct investment and financial development was introduced into the model, the effect of foreign direct investment on economic growth became positive and significant, while the coefficient of the interaction term was negative and significant. This implies that the sub-Saharan Africa does not have a sufficient financial system to effectively allocate external resources. As a result, this study used the TR to determine the minimum level of private sector credit as a percentage of GDP, which sets a threshold of 79.32.

Keywords: foreign direct investment; financial development threshold; economic growth; generalized method of moments; SSA. (search for similar items in EconPapers)
Date: 2025
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