Foreign Direct Investment and Inclusive Growth: The Role of the Financial Sector Development

Emeka Nkoro () and Aham Kelvin Uko ()
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Emeka Nkoro: University of Port Harcourt
Aham Kelvin Uko: Ministry of Finance, Abia State

International Journal of Economic Sciences, 2022, vol. 11, issue 2, 144-162

Abstract: This study examined the role of the domestic financial sector development in the relationship between foreign direct investment (FDI) inflows and inclusive growth in Nigeria over the period, 1981-2020 using annual time series. Analytically, the study employed the autoregressive distributed lag approach of cointegration. The bound test result shows that there is a long-run relationship between inclusive growth and financial sector development, as well as the other underlying variables. Empirically, the result reveals that the FDI exerted a significant positive effect on inclusive growth when the domestic financial sector has reached a certain minimum level of development. The result further shows that the FDI alone has a significant negative effect on inclusive growth. This means that FDI alone does not necessarily increase the well-being of the people, except when a certain minimum level of financial sector development is attained. This is evidence that the domestic financial sector development is a pre-condition for FDI to effectively promote inclusive growth in Nigeria. Therefore, the study recommends that the development of the domestic absorptive capacity-financial sector development should be extended by promoting reforms that will translate FDI inflow into inclusive growth.

Keywords: Inclusive Growth; Foreign Direct Investment; Financial Sector Development; Threshold Level; ARDL Approach. (search for similar items in EconPapers)
JEL-codes: E44 F21 F43 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aop:jijoes:v:11:y:2022:i:2:p:144-162

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