Re-examining the causal relationships among FDI, economic growth and financial sector development in Africa

Muazu Ibrahim and Abraham Mensah Acquah

International Review of Applied Economics, 2021, vol. 35, issue 1, 45-63

Abstract: Studies on the causal relationships among foreign direct investment (FDI), economic growth and financial sector development are far from being conclusive, a reflection of the different methodologies and country-settings employed. In this study, we depart from the use of single country cases to relying on a panel data comprising 45 African countries over the period 1980 to 2016 in examining such causal linkages. By applying a panel Granger Non-Causality test, we find that the causal nexus between FDI and economic growth is conditioned on the indicator of economic growth while we observe feedback causality between (i) FDI and financial sector development, and (ii) financial sector development and economic growth. These findings hold irrespective of the proxy of finance and economic growth. The study concludes by discussing key implications for policy.

Date: 2021
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DOI: 10.1080/02692171.2020.1822299

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