IDEAS home Printed from https://ideas.repec.org/a/spr/fininn/v5y2019i1d10.1186_s40854-019-0139-z.html
   My bibliography  Save this article

The interaction effect of foreign capital inflows and financial development on economic welfare in sub-Saharan Africa

Author

Listed:
  • Kwame Acheampong

    (Garden City Business School, Garden City University College, Kenyase)

Abstract

This study examines the interaction effects of foreign capital inflows and financial development on economic welfare in sub-Saharan Africa (SSA). Estimates based on the system-GMM estimator using panel data on 23 SSA countries for 2000 to 2013 establish several results. First, the interaction between foreign capital inflows and financial development positively affects economic welfare in SSA. However, this effect was negative after one year. Second, the partial indirect effects of foreign capital inflows on economic welfare, conditional on the level of financial development, are positive, though they become negative after one year. Third, the total effect of foreign capital inflows on economic welfare is positive. The effect becomes negative after a year, though the predominant source of financial development is domestic credit. The consistency of these results indicates the importance of financial development in transmitting foreign capital to economic welfare enhancement. Developing the SSA’s financial sector to meet specific welfare-enhancing demands may potentially convert a large share of capital inflows into improved economic welfare and eliminate the negative effects.

Suggested Citation

  • Kwame Acheampong, 2019. "The interaction effect of foreign capital inflows and financial development on economic welfare in sub-Saharan Africa," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-33, December.
    • Handle: RePEc:spr:fininn:v:5:y:2019:i:1:d:10.1186_s40854-019-0139-z
    DOI: 10.1186/s40854-019-0139-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1186/s40854-019-0139-z
    File Function: Abstract
    Download Restriction: no
    File URL: https://libkey.io/10.1186/s40854-019-0139-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Angus Deaton, 2003. "Health, Inequality, and Economic Development," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 113-158, March.
    2. Hisako Kai & Shigeyuki Hamori, 2009. "Globalization, financial depth, and inequality in Sub-Saharan Africa," Economics Bulletin, AccessEcon, vol. 29(3), pages 2025-2037.
    3. William D. Nordhaus & James Tobin, 1973. "Is Growth Obsolete?," NBER Chapters, in: The Measurement of Economic and Social Performance, pages 509-564, National Bureau of Economic Research, Inc.
    4. Simplice A. Asongu, 2013. "Investment And Inequality In Africa: Which Financial Channels Are Good For The Poor?," The African Finance Journal, Africagrowth Institute, vol. 15(2), pages 43-65.
    5. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-558, June.
    6. Victor R. Fuchs, 2018. "Economics, Values, and Health Care Reform," World Scientific Book Chapters, in: Health Economics and Policy Selected Writings by Victor Fuchs, chapter 39, pages 497-531, World Scientific Publishing Co. Pte. Ltd..
    7. Brian J. Aitken & Ann E. Harrison, 2022. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 6, pages 139-152, World Scientific Publishing Co. Pte. Ltd..
    8. Herzer, Dierk & Nunnenkamp, Peter, 2012. "FDI and health in developed economies: A panel cointegration analysis," Kiel Working Papers 1756, Kiel Institute for the World Economy (IfW Kiel).
    9. Angus Deaton, 2004. "Health in an Age of Globalization," NBER Working Papers 10669, National Bureau of Economic Research, Inc.
    10. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    11. Joseph Gruber & Steven Kamin, 2009. "Do Differences in Financial Development Explain the Global Pattern of Current Account Imbalances?," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 667-688, September.
    12. Eswar Prasad, 2007. "The Welfare Implications of Global Financial Flows," Cato Journal, Cato Journal, Cato Institute, vol. 27(2), pages 185-192, Spring/Su.
    13. Siong Law & Hui Tan & W. Azman-Saini, 2014. "Financial Development and Income Inequality at Different Levels of Institutional Quality," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S1), pages 21-33.
    14. World Bank, 2015. "World Development Indicators 2015," World Bank Publications - Books, The World Bank Group, number 21634, December.
    15. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
    16. World Bank, 2016. "World Development Indicators 2016," World Bank Publications - Books, The World Bank Group, number 23969, December.
    17. Korbinian Nagel & Dierk Herzer & Peter Nunnenkamp, 2015. "How Does FDI Affect Health?," International Economic Journal, Taylor & Francis Journals, vol. 29(4), pages 655-679, December.
    18. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    19. David N. Figlio & Bruce A. Blonigen, 2019. "The Effects of Foreign Direct Investment on Local Communities," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 11, pages 369-400, World Scientific Publishing Co. Pte. Ltd..
    20. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
    21. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, March.
    22. World Bank, 2012. "World Development Report 2013 [Rapport sur le développement dans le monde 2013]," World Bank Publications - Books, The World Bank Group, number 11843, December.
    23. World Bank, 2012. "Global Financial Development Report 2013 : Rethinking the Role of the State in Finance," World Bank Publications - Books, The World Bank Group, number 11848, December.
    24. Djankov, Simeon & Hoekman, Bernard M, 2000. "Foreign Investment and Productivity Growth in Czech Enterprises," The World Bank Economic Review, World Bank, vol. 14(1), pages 49-64, January.
    25. Enowbi Batuo, Michael & Guidi, Francesco & Mlambo, Kupukile, 2010. "Financial Development and Income Inequality: Evidence from African Countries," MPRA Paper 25658, University Library of Munich, Germany.
    26. World Bank, 2014. "World Development Indicators 2014," World Bank Publications - Books, The World Bank Group, number 18237, December.
    27. Kappel, Vivien, 2010. "The effects of financial development on income inequality and poverty," Proceedings of the German Development Economics Conference, Hannover 2010 25, Verein für Socialpolitik, Research Committee Development Economics.
    28. Georg R. G. Clarke & Lixin Colin Xu & Heng-fu Zou, 2006. "Finance and Income Inequality: What Do the Data Tell Us?," Southern Economic Journal, John Wiley & Sons, vol. 72(3), pages 578-596, January.
    29. Mr. Montfort Mlachila & Ms. Misa Takebe, 2011. "FDI from BRICs to LICs: Emerging Growth Driver?," IMF Working Papers 2011/178, International Monetary Fund.
    30. Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
    31. Björn Gustafsson & Negatu Makonnen, 1994. "The importance of remittances for the level and distribution of economic well‐being in lesotho," Journal of International Development, John Wiley & Sons, Ltd., vol. 6(4), pages 373-397, July.
    32. Bitzer, Jürgen & Kerekes, Monika, 2008. "Does foreign direct investment transfer technology across borders? New evidence," Economics Letters, Elsevier, vol. 100(3), pages 355-358, September.
    33. Damijan, Joze P. & Knell, Mark & Majcen, Boris & Rojec, Matija, 2003. "The role of FDI, R&D accumulation and trade in transferring technology to transition countries: evidence from firm panel data for eight transition countries," Economic Systems, Elsevier, vol. 27(2), pages 189-204, June.
    34. Anthanasius F. Tita & Meshach J. Aziakpono, 2016. "Financial development and income inequality in Africa: A panel heterogeneous approach," Working Papers 614, Economic Research Southern Africa.
    35. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    36. Parkin, David & McGuire, Alistair & Yule, Brian, 1987. "Aggregate health care expenditures and national income : Is health care a luxury good?," Journal of Health Economics, Elsevier, vol. 6(2), pages 109-127, June.
    37. Undp, 2009. "HDR 2009 - Overcoming barriers: Human mobility and development," Human Development Report (1990 to present), Human Development Report Office (HDRO), United Nations Development Programme (UNDP), number hdr2009, September.
    38. O. Ashenfelter & D. Card (ed.), 1999. "Handbook of Labor Economics," Handbook of Labor Economics, Elsevier, edition 1, volume 3, number 3.
    39. Joseph P. Newhouse, 1977. "Medical-Care Expenditure: A Cross-National Survey," Journal of Human Resources, University of Wisconsin Press, vol. 12(1), pages 115-125.
    40. Eskeland, Gunnar S. & Harrison, Ann E., 2003. "Moving to greener pastures? Multinationals and the pollution haven hypothesis," Journal of Development Economics, Elsevier, vol. 70(1), pages 1-23, February.
    41. Hitiris, Theo & Posnett, John, 1992. "The determinants and effects of health expenditure in developed countries," Journal of Health Economics, Elsevier, vol. 11(2), pages 173-181, August.
    42. James B. Ang & Jakob B. Madsen, 2013. "International R&D Spillovers And Productivity Trends In The Asian Miracle Economies," Economic Inquiry, Western Economic Association International, vol. 51(2), pages 1523-1541, April.
    43. David Roodman, 2006. "How to Do xtabond2," North American Stata Users' Group Meetings 2006 8, Stata Users Group.
    44. Russell, S.S. & Jacobsen, K. & Stanley, W.D., 1990. "International migration and development in Sub-Saharan Africa," World Bank - Discussion Papers 101, World Bank.
    45. Oluwatosin Adeniyi & Bello Ajide & Afees Salisu, 2015. "Foreign Capital Flows, Financial Development And Growth In Sub-Saharan Africa," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 40(3), pages 85-103, September.
    46. repec:pri:cheawb:deaton_healthglobalage.pdf is not listed on IDEAS
    47. Russel, S.S. & Jacobsen, K. & Stanley, W.D., 1990. "International Migration And Development In Africa; Volume Ii Country Analyses," World Bank - Discussion Papers 102, World Bank.
    48. Kim, Dong-Hyeon & Lin, Shu-Chin, 2011. "Nonlinearity in the financial developmentâincome inequality nexus," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 310-325, September.
    49. Adams, Richard H., Jr., 1991. "The effects of international remittances on poverty, inequality, and development in rural Egypt:," Research reports 86, International Food Policy Research Institute (IFPRI).
    50. Vivien Kappel, 2010. "The Effects of Financial Development on Income Inequality and Poverty," CER-ETH Economics working paper series 10/127, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    51. Ephraim Kleiman, 1974. "The Determinants of National Outlay on Health," International Economic Association Series, in: Mark Perlman (ed.), The Economics of Health and Medical Care, chapter 5, pages 66-88, Palgrave Macmillan.
    52. Emmanuel Cleeve, 2008. "How effective are fiscal incentives to attract FDI to Sub-Saharan Africa?," Journal of Developing Areas, Tennessee State University, College of Business, vol. 42(1), pages 135-153, September.
    53. Gemmell, Norman & Kneller, Richard & Sanz, Ismael, 2008. "Foreign investment, international trade and the size and structure of public expenditures," European Journal of Political Economy, Elsevier, vol. 24(1), pages 151-171, March.
    54. World Bank, 2012. "World Development Report 2012 [Rapport sur le développement dans le monde 2012]," World Bank Publications - Books, The World Bank Group, number 4391, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sheng Ma & Xinxin Xu & Ziqiang Zeng & Lin Wang, 2020. "Chinese Industrial Outward FDI Location Choice in ASEAN Countries," Sustainability, MDPI, vol. 12(2), pages 1-13, January.
    2. Qamruzzaman, Md & Karim, Salma & Jahan, Ishrat, 2022. "Nexus between economic policy uncertainty, foreign direct investment, government debt and renewable energy consumption in 13 top oil importing nations: Evidence from the symmetric and asymmetric inves," Renewable Energy, Elsevier, vol. 195(C), pages 121-136.
    3. Michael Appiah & Bright Akwasi Gyamfi & Tomiwa Sunday Adebayo & Festus Victor Bekun, 2023. "Do financial development, foreign direct investment, and economic growth enhance industrial development? Fresh evidence from Sub-Sahara African countries," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 22(2), pages 203-227, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Meniago, Christelle & Asongu, Simplice A., 2018. "Revisiting the finance-inequality nexus in a panel of African countries," Research in International Business and Finance, Elsevier, vol. 46(C), pages 399-419.
    2. Simplice Asongu & Rexon Nting, 2021. "The role of finance in inclusive human development in Africa revisited," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 38(2), pages 345-370, February.
    3. Asongu, Simplice & Nwachukwu, Jacinta C., 2015. "Finance and Inclusive Human Development: Evidence from Africa," MPRA Paper 71787, University Library of Munich, Germany.
    4. Koçak Emrah & Uzay Nısfet, 2019. "The effect of financial development on income inequality in Turkey: An estimate of the Greenwood-Jovanovic hypothesis," Review of Economic Perspectives, Sciendo, vol. 19(4), pages 319-344, December.
    5. Kaidi Nasreddine & Sami Mensi, 2016. "Financial Development and Income Inequality: The Linear versus the Nonlinear Hypothesis," Economics Bulletin, AccessEcon, vol. 36(2), pages 609-626.
    6. Günay ÖZCAN, 2020. "Financial development and income inequality: An empirical analysis on the emerging market economies," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(624), A), pages 85-96, Autumn.
    7. Thang Cong Nguyen & Tan Ngoc Vu & Duc Hong Vo & Dao Thi-Thieu Ha, 2019. "Financial Development and Income Inequality in Emerging Markets: A New Approach," JRFM, MDPI, vol. 12(4), pages 1-14, November.
    8. Dirk Bezemer & Anna Samarina, 2019. "Debt shift, financial development and income inequality," DNB Working Papers 646, Netherlands Central Bank, Research Department.
    9. D’Onofrio, Alexandra & Minetti, Raoul & Murro, Pierluigi, 2019. "Banking development, socioeconomic structure and income inequality," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 428-451.
    10. Brei, Michael & Ferri, Giovanni & Gambacorta, Leonardo, 2023. "Financial structure and income inequality," Journal of International Money and Finance, Elsevier, vol. 131(C).
    11. de Haan, Jakob & Sturm, Jan-Egbert, 2017. "Finance and income inequality: A review and new evidence," European Journal of Political Economy, Elsevier, vol. 50(C), pages 171-195.
    12. Pierluigi Murro & Valentina Peruzzi, 2018. "Cooperative banks and income inequality: Evidence from Italian provinces," Working Papers CASMEF 1804, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    13. Baiardi, Donatella & Morana, Claudio, 2018. "Financial development and income distribution inequality in the euro area," Economic Modelling, Elsevier, vol. 70(C), pages 40-55.
    14. Blau, Benjamin M., 2018. "Income inequality, poverty, and the liquidity of stock markets," Journal of Development Economics, Elsevier, vol. 130(C), pages 113-126.
    15. Gislain Stéphane Gandjon Fankem & Marthe Dorelle Melingui, 2021. "Le développement financier affecte‐t‐il l'inégalité de revenus en Afrique subsaharienne?," African Development Review, African Development Bank, vol. 33(4), pages 620-633, December.
    16. Dong-Hyeon Kim & Joyce Hsieh & Shu-Chin Lin, 2021. "Financial liberalization, political institutions, and income inequality," Empirical Economics, Springer, vol. 60(3), pages 1245-1281, March.
    17. Abdul Rahim Ridzuan & Shahsuzan Zakaria & Bayu Arie Fianto & Nora Yusma Mohamed Yusoff & Nor Fatimah Che Sulaiman & Mohamad Idham Md Razak & Siswantini Siswantini & Arsiyanti Lestari, 2021. "Nexus between Financial Development and Income Inequality before Pandemic Covid-19: Does Financial Kuznets Curve Exist in Malaysia, Indonesia, Thailand and Philippines?," International Journal of Energy Economics and Policy, Econjournals, vol. 11(2), pages 260-271.
    18. Seven, Unal & Coskun, Yener, 2016. "Does financial development reduce income inequality and poverty? Evidence from emerging countries," Emerging Markets Review, Elsevier, vol. 26(C), pages 34-63.
    19. Sturm, Jan-Egbert & De Haan, Jakob, 2016. "Finance and income inequality revisited," VfS Annual Conference 2016 (Augsburg): Demographic Change 145660, Verein für Socialpolitik / German Economic Association.
    20. Passant M. B. Selim & Hasan Güngör, 2021. "Inequality and financial development: Evidence from selected MENA region countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2732-2747, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:fininn:v:5:y:2019:i:1:d:10.1186_s40854-019-0139-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.