FOREIGN DIRECT INVESTMENT AND INCLUSIVE GROWTH: THE ROLE OF THE FINANCIAL SECTOR DEVELOPMENT

EMEKA NKORO, AHAM KELVIN UKO

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.

Keywords:
Inclusive Growth, Foreign Direct Investment, Financial Sector Development, Threshold Level, ARDL Approach.

DOI: 10.52950/ES.2022.11.2.008

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APA 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, Vol. XI(2), pp. 144-162. , DOI: 10.52950/ES.2022.11.2.008


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