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Modelling Financial Development in the Private Sector, FDI, and Sustainable Economic Growth in sub-Saharan Africa: ARDL Bound Test-FMOLS, DOLS Robust Analysis

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Abstract

This study explores the nexus of financial development in the private sector and sustainable economic development in Sub-Saharan Africa. We adopted Johansen cointegration and ARDL bound tests, Ng-Perron, Kwiatkowski-Phillips-Schmidt-Shin, and Canova and Hansen unit root tests together with the FMOLS, DOLS, and CCR statistical model analysis. The regional dataset contained annual time series data 1978–2019 obtained from the World Bank Open Data (www.data.worldbank.org). The dataset contained annual time series data 1978–2019. The results from FMOLS, DOLS, and CCR indicated a long-run relationship between financial development in the private sector and economic growth in the region. In short, the private sector spurs sustainable economic growth. We observed a similar long-run covariance between sustainable economic development and foreign direct investment (FDI) and found a significant level of causality between economic growth and financial development in the private sector, FDI, and export. All long-run statistical investigations revealed that the variables under study induced sustainable economic growth and development in sub-Saharan Africa in the short and in the long run. This study recommends that the relevant authorities should capitalise on private sector expansion and increase in exports if real sustainable development and growth is to be realised.

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Notes

  1. The data of the variables under study i.e. gross domestic product (GDP), foreign direct investment (FDI), financial development to the private sector (FDPS), exports (EXP), exchange rates (EXC), and inflation (INF) were obtained from the World Bank Open Data, Retrieved August 5, 2020, https://data.worldbank.org/

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    Lukman A. Olorogun

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Appendix A

Appendix A

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Fig. 3
figure 3

ResidualsVAR Structural Residuals using Cholesky (d.f. adjusted) Factors

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Olorogun, L.A. Modelling Financial Development in the Private Sector, FDI, and Sustainable Economic Growth in sub-Saharan Africa: ARDL Bound Test-FMOLS, DOLS Robust Analysis. J Knowl Econ (2023). https://doi.org/10.1007/s13132-023-01224-w

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