4.1 Article

Do financial development, foreign direct investment, and economic growth enhance industrial development? Fresh evidence from Sub-Sahara African countries

Journal

PORTUGUESE ECONOMIC JOURNAL
Volume 22, Issue 2, Pages 203-227

Publisher

SPRINGER HEIDELBERG
DOI: 10.1007/s10258-022-00207-0

Keywords

Financial development; Foreign development investment; Economic growth; Industrialization; Panel econometrics; Sub-Sahara African countries

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This study examines the effects of financial development, economic growth, and foreign direct investment on industrial growth in selected Sub-Saharan African countries. The findings suggest that financial development and economic growth have a positive impact on industrial development, while foreign direct investment has a negative impact. Furthermore, the study reveals a bidirectional causality between industrialization and financial development, and a unidirectional causality between foreign direct investment and economic growth with industrialization. This highlights the importance of creating a favorable environment for public-private partnerships to drive industrial development.
This study investigates the impact of financial development, economic growth, and foreign direct investment on enhancing industrial growth for a panel of selected Sub-Sahara African (SSA) countries from 1990-2017. However, the present study enriches our understanding of financial development by employing a new comprehensive index focused on the accessibility, scope, and productivity of capital systems and banking institutions and incorporated foreign direct investment and economic growth as significant industrial growth drivers in the selected countries. A more robust technique Augmented Mean Group (AMG) and Common Correlated Effect Mean Group (CCEMG), were employed to access the long-run relationship among the understudy variables. Further empirical results shows that financial development and economic growth enhance industrial development with finance exhibiting signifcance while foreign direct investment is seen as adverse. Moreover, a two-way causality was obtained between industrialization and financial development while both foreign direct investment and economic growth had a one-way causality relationship with industrialization. Thus, our study implies that the government officials within these countries must provide a suitable environment for the public, private partnerships, i.e. private sector, which is the backbone for industrial development.

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