Nexus among foreign direct investment, financial development, and sustainable economic growth: Empirical aspects from Sudan

Abstract

This study examined the nexus between foreign direct investment (FDI), financial development, and sustainable economic growth in Sudan during the period of the structural adjustment program and the full Islamization of the banking and financial system that took place in the 1980s. The research provides a comprehensive analysis using the most recent time series secondary data from 1990 to 2020 and the study employed co-integration, Granger causality, and VAR error correction technique to estimate the models, to clarify the claimed relationship between FDI and its effect on the financial sector and subsequently attending a sustainable economic development in Sudan. In this research, Augmented Dickey-Fuller (ADF) unit root tests are applied to test the stationarity of data and the data was found stationary at first difference. The results of the ARDL bounds showed the existence of a long-term relationship between the FDI and other independent variables but the short-term showed otherwise. The Granger causality test implies that the past values of FDI don't significantly contribute to the prediction of sustainable economic growth. Also, results show that there's evidence of observed causality running from the country's trade openness and the financial sector's development. The implication of these results shows there is a complementary relationship between sustainable economic growth and both financial development and trade openness in the short run. Interestingly, the findings of the study show that the effect of financial development on economic growth is further enhanced by the inflows of FDI.