The Relationship between FDI and Financial Market Development: The Case of the Sub-Saharan African Region

Aklilu Gebrehiwot, Naser Esfahani and Mustafa Sayim

International Journal of Regional Development, 2016, vol. 3, issue 1, 64

Abstract: The purpose of this paper is to investigate the long-run relationship between foreign direct investment and financial market development in the sub-Saharan African region. Due to the lack of adequate and reliable financial market data for all countries, the data of eight sub-Saharan countries that have full and reliable data sources are used. Our study covers data ranging from 1991 to 2013.For simplicity, the financial market development indicators are divided into two categories- banking and stock market development indicators. We apply the Granger causality test to examine the causal relationship between the two variables. Then, the two-step panel regression model (2SLS) is run to ensure consistency in the findings. Based on the results of both the Granger causality test and 2SLS panel regression, the relationship between foreign direct investment (FDI) and financial market development is found to be inclusive.

Date: 2016
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