Linking foreign direct investment to financial deepening: Evidence from sub‐Saharan Africa

Osamede Success Abusomwan and John Norense Izevbigie

African Development Review, 2024, vol. 36, issue 1, 1-14

Abstract: In this study, the nexus between Foreign Direct Investment (FDI) and financial deepening is critically examined. The study employed a robust dynamic panel cross‐sectionally augmented distributed lag method for 31 countries in sub‐Saharan Africa (SSA). The results reveal that: (1) a strong significantly positive long run impact of FDI on financial deepening exists; (2) real gross domestic product (GDP), trade openness and government effectiveness stimulate the positive FDI–financial deepening nexus; (3) the strength of the FDI–financial deepening nexus also depends on the percentile position in the income distribution of SSA countries (countries in the upper strata of the income distribution evidently had stronger FDI–financial deepening relations than those in the lower strata and (4) real GDP, trade openness and government effectiveness also enhance financial deepening in SSA. The study recommends that governments in SSA should foster fiscal, financial and regulatory incentives for attracting FDI for improved financial depth in SSA by: strengthening the regulatory frameworks and institutions of governance through the removal of unwarranted governmental interferences in the administration of justice and electoral processes; removing multiple tax regimes; and stabilizing prices and exchange rate volatility via stimulating local productivity and guaranteeing the rule of law, political stability and security of life and property in the region.

Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/1467-8268.12737

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:afrdev:v:36:y:2024:i:1:p:1-14

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1017-6772

Access Statistics for this article

African Development Review is currently edited by John C. Anyanwu, Hassan Aly and Kupukile Mlambo

More articles in African Development Review from African Development Bank Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().