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Complementarity Effect of Financial Development and FDI on Investment in Sub‐Saharan Africa: A Panel Data Analysis
Author(s) -
Boateng Elliot,
Amponsah Mary,
Annor Baah Collins
Publication year - 2017
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12258
Subject(s) - foreign direct investment , economics , openness to experience , panel data , complementarity (molecular biology) , financial sector development , investment (military) , financial deepening , international economics , monetary economics , inflation (cosmology) , financial sector , macroeconomics , finance , financial intermediary , psychology , social psychology , genetics , law , econometrics , physics , biology , politics , political science , theoretical physics
This paper examines the interactive effect of financial development and foreign direct investment (FDI) inflows on domestic investment in sub‐Sahara Africa (SSA). A panel data of 16 SSA countries sampled from 1980 to 2014 are employed. Using the fixed effect, pooled OLS and the FMOLS techniques, our empirical results show that financial development complements FDI inflows to augment domestic investment in SSA. Among other things, the direct effect of FDI inflows, financial sector development, real GDP growth, domestic savings and trade openness are investment promoting while lending rate and inflation inhibit domestic investment in the region. As a policy implication, deepening the financial sector demands considerable attention since it serves as an important channel through which FDI influences domestic investment. While developing the financial sector, it is equally essential that policymakers give enough attention to key macroeconomic stability.