Examining The Influence of Foreign Direct Investment on Economic Growth In Africa: The Role Of Financial Sector Development.

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The overall aim of this research was to examine the influence of foreign direct investment on economic growth in Africa considering the role of financial sector development. Following the key paper, this research adopted the use of the explanatory research design and the panel data approach to empirically examine the research objective. The data used for the study covered the periods between 2001 to 2021. The sample for this study revolves around the use of 46 African countries. These countries were purposely selected due to the availability of data on the variables being used for the study. Following the key paper, this study uses the two step system GMM. For data with a small time period (T) and a large number of cross-sections (N), the Arellano and Bond GMM estimator offers reliable estimates. This method of estimation works particularly well with time varying endogenous explanatory factors. Based on the findings, it can be concluded that FDI had a negative influence on economic growth, suggesting that the investment was not effectively contributing to the overall expansion of the economy. However, the study also found that both private credit and domestic credit played important moderating roles, that is they positively moderate this negative relationship. The study among several factors recommended that governments and policymakers should implement measures to attract FDI that is directed towards industries and sectors that have the potential for technological transfer, job creation, and increased productivity. The study also recommended that efforts should be made to enhance access to private credit in African economies. Governments and financial institutions should implement policies that facilitate the availability of credit to both domestic and foreign investors. This can be achieved through the development of a robust financial sector, including well-regulated banking systems, credit guarantee schemes, and initiatives to increase financial literacy and inclusion.
A thesis submitted to the department of accounting and finance college of humanities and social sciences in partial fulfilment of the requirements for the degree of mba. Finance