Foreign Direct Investments and Stock Market Development in Sub-Saharan Africa: Does Regulatory Quality Moderate?

The association between foreign direct investment (FDI) and stock market development (SMD) is very crucial given the role of liquidity in the SMD process. However, this association can be affected by regulatory quality. Through the Calderon-Rossell model, this article explored the direct and conditional effects of FDI on SMD in five sub-Saharan African countries (Ghana, Mauritius, Namibia, Nigeria and South Africa) from 1996 to 2020. Regulatory quality was used as a moderator of the association between FDI and SMD. The pooled mean group strategy of the panel Auto Regressive Distributed Lag was implemented and findings suggested that FDI is positively and significantly related to SMD in the long-run. Furthermore, the conditional effect of regulatory quality on the association between FDI and SMD could not be established. This article has policy implications and contributed to the Calderon-Rossell model theoretical debate that liquidity improves SMD.