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Foreign direct investment and financial development in Africa: A causality assessment in the frequency domain

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  • Taoufiki Mbratana
  • Andrée Kenne Fotié
  • Marius Claude Oyon Amba

Abstract

Previous contributions have recognized that Foreign Direct Investment (FDI) and financial development, respectively, play a vital role in enhancing economic growth across nations. However, the causal relationship between FDI and financial development have not been sufficiently investigated in developing countries and particularly in Africa. The current paper overcomes this gap by assessing the direct causality between FDI and financial development for 47 African countries. To that end, the frequency domain Granger causality test is used to establish short (temporary) and long run (permanent) causality. The main results document evidence of permanent and temporary causality in terms of bidirectional or unidirectional links, although there are several cases of no causality between FDI and financial development indicators. The outcomes of this study invite policymakers to address issues regarding the relationship between foreign investments and financial sector from a temporal or a permanent dynamic.

Suggested Citation

  • Taoufiki Mbratana & Andrée Kenne Fotié & Marius Claude Oyon Amba, 2021. "Foreign direct investment and financial development in Africa: A causality assessment in the frequency domain," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 30(5), pages 685-706, July.
    • Handle: RePEc:taf:jitecd:v:30:y:2021:i:5:p:685-706
    DOI: 10.1080/09638199.2021.1892164
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    Cited by:

    1. Osamede Success Abusomwan & John Norense Izevbigie, 2024. "Linking foreign direct investment to financial deepening: Evidence from sub‐Saharan Africa," African Development Review, African Development Bank, vol. 36(1), pages 1-14, March.
    2. Shoukat Iqbal Khattak & Waseem Ahmad Khan, 2024. "Chinese Overseas Foreign Direct Investment–International Foreign Portfolio Investment–Financial Sector Development Nexus in the Belt and Road Initiative Economies: A Regional Analysis Based on Third-G," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 3014-3038, March.
    3. Scalamonti, Francesco, 2024. "The foreign investments-growth nexus in underdeveloped countries: the state-of-art of research analysing a selected and recent empirical literature (2020-2022)," Technological Forecasting and Social Change, Elsevier, vol. 198(C).

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