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The long-run and short-run effects of foreign direct investment on financial development in African countries

Henri Njangang (), Nembot Ndeffo Luc and Larissa Nawo

MPRA Paper from University Library of Munich, Germany

Abstract: This paper contributes to the understanding of the other neglected effects of foreign direct investment by analysing how foreign direct investment affects financial development in the short-run and long-run for a panel of 49 African countries over the period 1990-2016. The empirical evidence is based on Pooled Mean Group (PMG) approach. With three panels differentiated by income level, the following findings are established: first, while there is a positive and significant long-run relationship between foreign direct investment and financial development in Africa, in the short-run the effect of foreign direct investment on financial development is negative. Second, the effect of foreign direct investment is positive and significant in the long-run in the three sub-samples. However, in the short-run, the effect of foreign direct investment is negative and significant in lower-income countries and non-significant in lower-middle-income and upper-middle-income countries. Overall we find a strong evidence supporting the view that foreign direct investment promotes financial development in African countries in the long-run.

Keywords: Foreign direct investment; financial development; Pooled Mean Group; Africa (search for similar items in EconPapers)
JEL-codes: F23 O16 O55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-fdg and nep-int
Date: 2019-06-07
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Journal Article: The Long‐run and Short‐run Effects of Foreign Direct Investment on Financial Development in African Countries (2019) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:94362

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