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FOREIGN CAPITAL FLOWS, FINANCIAL DEVELOPMENT AND GROWTH IN SUB-SAHARAN AFRICA

Oluwatosin Adeniyi (), Kazeem Ajide () and Afees Salisu ()

Journal of Economic Development, 2015, vol. 40, issue 3, 85-103

Abstract: This paper investigated how financial development influences the relationship between foreign direct investment (FDI) and economic growth in selected Sub-Saharan Africa (SSA) countries. This study considered three alternative measures of financial development (FD) and their impacts on the FDI-growth linkage. It also explored the possibility of non- linearities in the tripartite relationships. The results showed a positive influence of FDI on economic growth. Financial system development also had growth-promoting impact in the presence of FDI flows. Interestingly, these findings remained robust when potential endogeneity was accounted for using a well known instrumental variable (IV) estimator. Digging deeper, the findings also supported the existence of non-linearities in the role of FD in the FDI-growth association. In policy terms, these SSA countries will reap more growth benefits from foreign capital flows especially if financial reforms are sustained.

Keywords: Financial Development; Foreign Direct Investment; Gross Domestic Product; Sub-Saharan Africa (search for similar items in EconPapers)
JEL-codes: E44 G20 O16 (search for similar items in EconPapers)
Date: 2015
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