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Foreign Direct Investment and Inclusive Growth: The Role of the Financial Sector Development

Author

Listed:
  • EMEKA NKORO

    (University of Port Harcourt)

  • AHAM KELVIN UKO

    (Ministry of Finance, Abia State)

Abstract

This study examined the role of the domestic financial sector development in the relationship between foreign direct investment (FDI) inflows and inclusive growth in Nigeria over the period, 1981-2020 using annual time series. Analytically, the study employed the autoregressive distributed lag approach of cointegration. The bound test result shows that there is a long-run relationship between inclusive growth and financial sector development, as well as the other underlying variables. Empirically, the result reveals that the FDI exerted a significant positive effect on inclusive growth when the domestic financial sector has reached a certain minimum level of development. The result further shows that the FDI alone has a significant negative effect on inclusive growth. This means that FDI alone does not necessarily increase the well-being of the people, except when a certain minimum level of financial sector development is attained. This is evidence that the domestic financial sector development is a pre-condition for FDI to effectively promote inclusive growth in Nigeria. Therefore, the study recommends that the development of the domestic absorptive capacity-financial sector development should be extended by promoting reforms that will translate FDI inflow into inclusive growth.

Suggested Citation

  • Emeka Nkoro & Aham Kelvin Uko, 2022. "Foreign Direct Investment and Inclusive Growth: The Role of the Financial Sector Development," International Journal of Economic Sciences, European Research Center, vol. 11(2), pages 144-162, November.
    • Handle: RePEc:aop:jijoes:v:11:y:2022:i:2:p:144-162
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    References listed on IDEAS

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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