Attracting and Securing Foreign Direct Investment Inflows Amidst Global Uncertainty: Does Financial Development Matter in Africa?

Fabrice Nguegang, Ndzembanteh Aboubakary Nulambeh and Genevieve Christel Mapa Kamdoum

African Development Review, 2025, vol. 37, issue 4

Abstract: This paper employs a novel global uncertainty measure and a comprehensive financial development indicator to analyze the moderating role of financial development in the nexus between uncertainty and foreign direct investment (FDI). The analysis focuses on a sample of 36 sub‐Saharan African countries and uses 5‐year average data across the period 2003–2021. The two‐step system generalized method of moments is used as the main empirical strategy, and fixed‐effects regressions with Driscoll and Kraay standard errors are employed as an alternative to control for potential cross‐sectional dependence. The findings indicate that the effect of global uncertainty on FDI inflows is inconsistent. Financial development has been identified as a key “pull factor” driving FDI. However, its synergy effect with global uncertainty acts as a deterrent for FDI activities. The marginal effects analysis indicates that this “crowding‐out” effect is more pronounced in countries with more advanced financial development. As for policy implications, the study suggests differentiated and context‐sensitive regulatory measures with varying levels of financial development.

Date: 2025
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