Foreign Direct Investment, Economic Growth and Financial Sector Development in Small Open Developing Economies

Economic Analysis & Policy, Vol. 42 No. 1, March 2012

24 Pages Posted: 5 Oct 2012

See all articles by Oluwatosin Ademola Adeniyi

Oluwatosin Ademola Adeniyi

University of Ibadan, Department of Economics, Students

Dr. Olusegun A. Omisakin

The Nigerian Economic Summit Group (NESG); Independent

Festus Egwaikhide

University of Ibadan - Faculty of Public Health

Abimbola Oyinlola

affiliation not provided to SSRN

Date Written: 2012

Abstract

The present paper examines the causal linkage between foreign direct investment (FDI) and economic growth - in Cote’ d’Ivoire, Gambia, Ghana, Nigeria and Sierra Leone - with financial development accounted for over the period 1970-2005 within a trivariate framework which applies Granger causality tests in a vector error correction (VEC) setting. Three alternative measures of financial sector development - total liquid liabilities, total banking sector credit and credit to the private sector - were employed to capture different ramifications of financial intermediation. Our results support the view that the extent of financial sophistication matters for the benefits of foreign direct investment to register on economic growth in Ghana, Gambia and Sierra Leone depending on the financial indicator used. Nigeria, on the other hand, displays no evidence of any short- or long-run causal flow from FDI to growth with financial deepening accompanying. In sum, therefore, what should be of utmost urgency is concerted efforts in most of these countries, which have typically been in the throes of economic reforms, to upgrade their financial structure to better position them to reap the desirable growth promoting effects of FDI flows.

Keywords: Foreign Direct Investment, Economic Growth, Financial Sector Development

Suggested Citation

Adeniyi, Oluwatosin Ademola and Omisakin, Olusegun A. and Omisakin, Olusegun A. and Egwaikhide, Festus and Oyinlola, Abimbola, Foreign Direct Investment, Economic Growth and Financial Sector Development in Small Open Developing Economies (2012). Economic Analysis & Policy, Vol. 42 No. 1, March 2012, Available at SSRN: https://ssrn.com/abstract=2156883

Oluwatosin Ademola Adeniyi

University of Ibadan, Department of Economics, Students

Department of Economics
University of Ibadan
Ibadan, Oyo 200284
Nigeria

Olusegun A. Omisakin (Contact Author)

The Nigerian Economic Summit Group (NESG) ( email )

The Summit House,
6, Oba Elegunshi Street
Ikoyi, Lagos, 234
Nigeria

HOME PAGE: http://www.olusegunomisakin.com

Independent ( email )

Festus Egwaikhide

University of Ibadan - Faculty of Public Health ( email )

University of Ibadan
Ibadan, OR Oyo Stase 10001
Nigeria

Abimbola Oyinlola

affiliation not provided to SSRN

No Address Available

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