Complementarity effect of financial development and FDI on investment in sub-Saharan Africa: a panel data analysis

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. Bibliogr., sum. [Journal abstract]