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Financial development, FDI and economic growth: evidence from Sudan

Author

Listed:
  • Abdalla Sirag
  • Samira SidAhmed
  • Hamisu Sadi Ali

Abstract

Purpose - The effect of foreign direct investment (FDI) on economic growth is widely believed to be contingent on the development of the financial sector. Nevertheless, as the possibility that the effect of financial development on growth being contingent on FDI has been neglected in existing literature, the authors have investigated it in this paper. In general, the purpose of this paper is to examine the effect of financial development and FDI on economic growth in Sudan using annual data from 1970 to 2014. Design/methodology/approach - Since most of the macroeconomic variables are subject to unit root problem, the time series data are assessed using unit root and cointegration tests with/without structural break. Moreover, the study uses the fully modified ordinary least squares and the dynamic ordinary least squares techniques to estimate the long-run model. Findings - The results of the cointegration tests provide evidence that a long-run relationship exists among variables even after accounting for the structural break. The results show that financial development and FDI are positive and significant in explaining economic growth in Sudan. Financial development is found to be more beneficial to economic growth than FDI. Moreover, the findings reveal that FDI leads to better economic performance through financial development. Interestingly, the findings of the study show that the effect of financial development on economic growth is further enhanced by the inflows of FDI. Research limitations/implications - The government should focus on promoting FDI in more productive sectors. In addition, further cooperation with multinational enterprises is needed to increase FDI in the country. Originality/value - This is the first paper that empirically examines both the interlinked impact of FDI on growth through financial development and the impact of financial development on economic growth through FDI in Sudan using appropriate econometric methods.

Suggested Citation

  • Abdalla Sirag & Samira SidAhmed & Hamisu Sadi Ali, 2018. "Financial development, FDI and economic growth: evidence from Sudan," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 45(8), pages 1236-1249, August.
    • Handle: RePEc:eme:ijsepp:ijse-10-2017-0476
    DOI: 10.1108/IJSE-10-2017-0476
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    Citations

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    Cited by:

    1. Tomader Elhassan & Bakhita Braima, 2020. "Impact of Khartoum Stock Exchange Market Performance on Economic Growth: An Autoregressive Distributed Lag ARDL Bounds Testing Model," Economies, MDPI, vol. 8(4), pages 1-16, October.
    2. Milin Ioana Anda & Bușan Gabriela & Ecobici Nicolae & Abdul Rehman, 2023. "Economic Growth Drivers in Romania: Evidence from a NARDL Analysis," Sustainability, MDPI, vol. 15(7), pages 1-19, March.
    3. Qamri, Ghulam Muhammad & Sheng, Bin & Adeel-Farooq, Rana Muhammad & Alam, Gazi Mahabubul, 2022. "The criticality of FDI in Environmental Degradation through financial development and economic growth: Implications for promoting the green sector," Resources Policy, Elsevier, vol. 78(C).
    4. Chang, Chiu-Lan & Fang, Ming, 2022. "Renewable energy-led growth hypothesis: New insights from BRICS and N-11 economies," Renewable Energy, Elsevier, vol. 188(C), pages 788-800.
    5. Huaxi Yuan & Yidai Feng & Jay Lee & Haimeng Liu, 2020. "The Spatio-Temporal Heterogeneity of Financial Agglomeration on Green Development in China Cities Using GTWR Model," Sustainability, MDPI, vol. 12(16), pages 1-19, August.
    6. Emre Gökçeli & Jan Fidrmuc & Sugata Ghosh, 2022. "Effect of Foreign Direct Investment on Economic Growth and Domestic Investment: Evidence from OECD Countries," European Journal of Business Science and Technology, Mendel University in Brno, Faculty of Business and Economics, vol. 8(2), pages 190-216.
    7. Óscar Hernán Cerquera-Losada & Libardo Rojas-Velásquez, 2020. "Inversión extranjera directa y crecimiento económico en Colombia," Revista Facultad de Ciencias Económicas, Universidad Militar Nueva Granada, vol. 28(2), pages 9-26, December.
    8. Chenghong Xu & Mingming Han & Toyo Amegnonna Marcel Dossou & Festus Victor Bekun, 2021. "Trade openness, FDI, and income inequality: Evidence from sub‐Saharan Africa," African Development Review, African Development Bank, vol. 33(1), pages 193-203, March.
    9. James Temitope Dada & Ezekiel Olamide Abanikanda, 2022. "The moderating effect of institutions in foreign direct investment led growth hypothesis in Nigeria," Economic Change and Restructuring, Springer, vol. 55(2), pages 903-929, May.
    10. Yao Hongxing & Olivier Joseph Abban & Alex Dankyi Boadi, 2021. "Foreign aid and economic growth: Do energy consumption, trade openness and CO2 emissions matter? A DSUR heterogeneous evidence from Africa’s trading blocs," PLOS ONE, Public Library of Science, vol. 16(6), pages 1-25, June.
    11. Muhammad Azhar Bhatti & Muhammad Yousuf Khan Marri & Ali Azam, 2021. "Impact of Tourism Growth and FDI on Economic Growth: Evidence from South Asian Countries," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 3(3), pages 343-353, December.

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