FOREIGN DIRECT INVESTMENT AND ECONOMIC DEVELOPMENT: THE MEDIATING ROLE OF DIGITAL FINANCIAL INCLUSION IN SUB-SAHARAN AFRICA

Limited digital financial infrastructure in many Sub-Saharan African countries continues to constrain the extent to which foreign direct investment translates into broad-based economic development outcomes. This study examines whether digital financial inclusion (DFI) influences the relationship between foreign direct investment (FDI) and economic development in 34 Sub-Saharan African countries from 2000 to 2022, comprising 782 country-year observations. Using a two-step system Generalised Method of Moments (Sys-GMM) estimator alongside bootstrapped mediation analysis, the findings show that FDI exerts a positive and statistically significant total effect on GDP per capita growth. Results further indicate that DFI partially mediates this relationship, accounting for approximately 44.2% of FDI's growth effect through the digital financial channel (indirect effect: a × b = 0.138; bootstrapped 95% confidence interval [0.062, 0.221]). The significant coefficient of the FDI × DFI interaction term suggests that foreign capital inflows and digital financial depth complement one another in promoting economic development. Pre-estimation diagnostics reveal cross-sectional dependence, which is addressed using clustered standard errors and supports the adoption of the dynamic panel Sys-GMM framework. The findings remain robust across six alternative model specifications. These results provide important policy implications for strengthening digital infrastructure and improving the developmental impact of foreign investment across Sub-Saharan Africa

0 23 Jun, 2026

pg: 17

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