Financial Market Development and Foreign Direct Investment in Sub-Saharan Africa: The Role of Country Level Governance

ABSTRACT

Studies have established mixed results on the relationship between financial market development and foreign direct investment. However, governance has been identified in literature to influence both financial market development and foreign direct investment, yet no study has considered the interacting of financial market development, governance and foreign direct investment. Thus, this study is of the view that governance could probably influence the relationship between financial market development and foreign direct investment in Sub- Saharan Africa. The study purported to examine the interacting role of governance in the relationship between financial market development and foreign direct investment in Sub-Saharan Africa from 1997 to 2016. The study was backed by Eclectic theory and new institutional economic theory. The study adopted Generalized Method of Moment (GMM) technique. The study first found positive relationship between financial market development and foreign direct investment in Sub- Saharan Africa. Secondly, it found positive relationship between financial market development and foreign direct investment in Sub- Saharan Africa. Finally, it found that governance plays an interaction role in the relationship between financial market development and foreign direct investment in Sub-Saharan Africa. Hence, this study suggests that Sub-Saharan economies should enhance both their financial market and governance (specifically, control of corruption, regulatory quality, political stability and voice and accountability) in order to maximize inflows of foreign direct investment