Financial Development, Foreign Bank Presence, Inclusive Growth and Foreign Direct Investment Nexus in Africa

Abstract

This thesis aims to provide a comprehensive analysis of the relationship between foreign bank presence (FBP), financial development, inclusive growth and foreign direct investment (FDI) in Africa. The study used data from 28 African countries for three objectives from 2000 to 2018 and 49 African countries for the final objective over 24 years, from 1997 to 2020, due to data availability. The first objective examines the moderation role of FBP on Financial Technology (Fintech)-inclusive finance nexus using quantile regression. The second objective ascertains the effect of FBP and institutional quality on financial development using Generalised Method of Moment (GMM). Objective three assesses the extent to which the nexus between FBP and inclusive growth is being impacted by the financial development using GMM. Two stage least square was used to investigates the joint effect of financial development and globalisation on FDI inflows. The study sourced data on FBP from Bank Scope, financial development index and Fintech variables from International Monetary Funds, globalisation variables from Konjunkturforschungsstelle and the rest of the variables were obtained from the World Bank database. The study finds that both measure of Fintech (mobile phone used to pay bills and send money) induce inclusive finance, however, the former enhances inclusive finance more than the latter. FBP insensateFintech-inclusive finance nexus. The results indicate that institutional quality plays a significant role in the FBP-financial development nexus. The study also finds that FBP promotes inclusive growth, and financial development magnifies this effect. Both financial development index and globalisation impact FDI in Africa positively. While globalisation and financial development work together to stimulate FDI, the study revealed that political globalisation has a stronger impact on the financial development FDI nexus. The paper suggests that African countries should promote inclusive finance by creating a favourable environment for Fintech, strengthening financial sector regulators, and enhancing absorptive capacity. Policymakers should also focus on creating an environment that promotes globalisation, and FDI inflows while protecting small domestic firms that create employment in Africa. This study enhances the knowledge of international finance and economics, with a particular focus on developing countries.