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

Author

Listed:
  • Aklilu Gebrehiwot
  • Naser Esfahani
  • Mustafa Sayim

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.

Suggested Citation

  • Aklilu Gebrehiwot & Naser Esfahani & Mustafa Sayim, 2016. "The Relationship between FDI and Financial Market Development: The Case of the Sub-Saharan African Region," International Journal of Regional Development, Macrothink Institute, vol. 3(1), pages 1-64, December.
    • Handle: RePEc:mth:ijrd88:v:3:y:2016:i:1:p:64
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    Citations

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    Cited by:

    1. Huy Tiet Pham & Christopher Gan & Baiding Hu, 2022. "Causality between Financial Development and Foreign Direct Investment in Asian Developing Countries," JRFM, MDPI, vol. 15(5), pages 1-26, April.
    2. Elliot Boateng & Mary Amponsah & Collins Annor Baah, 2017. "Complementarity Effect of Financial Development and FDI on Investment in Sub-Saharan Africa: A Panel Data Analysis," African Development Review, African Development Bank, vol. 29(2), pages 305-318, June.
    3. Koffi Pokou, 2020. "FDI Inflows and Financial Development in Ecowas: Causality Analysis in the Frequency Domain," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(8), pages 946-955, August.
    4. Jithin P & Suresh Babu M, 2022. "Does foreign direct investments in financial services induce financial development? Lessons from emerging economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4399-4411, October.
    5. Yilmaz Bayar & Marius Dan Gavriletea, 2018. "Foreign Direct Investment Inflows and Financial Development in Central and Eastern European Union Countries: A Panel Cointegration and Causality," IJFS, MDPI, vol. 6(2), pages 1-13, May.
    6. Chris Doucouliagos & Jakob de Haan & Jan-Egbert Sturm, 2022. "What drives financial development? A Meta-regression analysis [A new database of financial reforms]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 840-868.
    7. Tran, Viet Nhu Anh & Huynh, Cong Minh, 2022. "The impact of foreign direct investment on financial development in Asian countries," MPRA Paper 114311, University Library of Munich, Germany.
    8. Yaya Keho, 2020. "Linkages between Foreign Direct Investment and Financial Development: Evidence from West African Countries," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(6), pages 1-3.

    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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