Investigating the causality between financial inclusion, financial development and sustainable development in Sub‐Saharan Africa economies: The mediating role of foreign direct investment

Abstract

In developing economies, the role of the financial sector and foreign capital in the stimulation of sustainable production practices has not been very clear cut. In a bid to obtain a much clearer empirical perspective, the present study investigates the causal relationship between financial development, financial inclusion, foreign direct investment (FDI) and sustainable development in a panel of 33 Sub-Saharan African (SSA) economies within the 2004-2018 study periods. Panel cointegration tests uncover the presence of a long-run relationship among the variables in the model.Prior to determining the direction of causality, panel estimation procedures show the magnitude and signs of the long run coefficients. Panel Granger causality tests uncover bidirectional causality between financial inclusion and FDI as well as between financial development and FDI. Also uncovered is unidirectional causality from FDI towards sustainable development and resource rents. This study suggests that the policymakers in SSA should optimize the level of financial development which requires a vigorous improvement so as to ensure higher potential benefits for the sustainability of SSA region through financial sector.

Investing green for sustainable development without ditching economic growth

“…Since the evidence comprises a huge number of factors, we select a few representative variables based on the findings of the most influential studies (see e.g., Acemoglu et al, 2002; Barro, 1991, 2001; Mankiw et al, 1992; Rodrik, 1999; Romer, 1990). Given this theoretical background, we augment the production function with financial development ( FD ) which can facilitate economic growth by improving the efficiency of financial transactions and reducing the cost of said transactions as demonstrated by De Gregorio and Guidotti (1995) and Odugbesan et al (2020). In addition, trade openness ( TRAD ) can spur growth through technological diffusion and knowledge spillovers (see Huchet‐Bourdon et al, 2018), and democratic accountability ( DEM ) which can create an enabling institutional environment that can guarantee property rights and the restraint of kleptocratic dictators who encourage rent‐seeking practices as shown by Baklouti and Boujelbene (2018).…”

A Theoretical Review of The Relationship Between Financial Inclusion and Human Development

“…Tita and Aziakpono (2017) stated that SSA needs structural transformation which demands rural roads, electrification, education, and healthcare. It has been also considered that the financial industry can largely contribute to driving this procedure of inclusive growth by providing financial availability to all citizens who can perceive a requirement for it and can utilise it, specifically the poorest 40% and Small and Medium Enterprises (Odugbesan et al, 2022;Chiseyengi, et. al.,2022).…”

Editorial: Export product quality, renewable energy, and sustainable production

“…A significant and quickly expanding demand for adequate financing and functional financial instruments and markets may result in sustainable production. This is a crucial area that necessitates the use of sustainable finance and financial development (Odugbesan et al, 2022). However, financial development initiatives are focused on short-term requirements, which are not necessarily best for society's welfare.…”

“…However, financial development initiatives are focused on short-term requirements, which are not necessarily best for society's welfare. As a result, financial development may help reduce income disparity up to a point and create opportunities for a more sustainable society (Odugbesan et al, 2022).…”