The Effects of Foreign Direct Investment Uncertainty on Financial Development in Nigeria: An Asymmetric Approach

Document Type : Research Paper


1 Faculty of Business Management, University Sultan Zainal Abidin, Malaysia Received: May

2 Faculty of Business Management, University Sultan Zainal Abidin, Malaysia


This article investigates the dynamic effects of foreign direct investment uncertainty on financial development in Nigeria and the interacting role of financial inclusion and economic growth. We used the annual time series data of Nigeria covering the period 1970-2018. Through advanced econometric techniques, we first substantiated stationarity level and co-integration among the scrutinized variables, which is genuinely done for reliable findings. Following that, we applied Gregory and Hansen (1996) co-integration test, Non-linear ARDL as the elasticity estimator, and Diks and Panchenko (2006) causality test for the analysis. The Empirical evidence postulates the asymmetric nature of foreign direct investment uncertainty to financial development. We also found a non-linear uni-directional causality running from economic growth to financial development, foreign direct investment uncertainty to financial development, and financial inclusion to financial development. In the end, the authors proposed the needed policy recommendations to strengthen the Nigerian financial sector.


Main Subjects

Article Title [فارسی]

اثرات عدم قطعیت سرمایه گذاری مستقیم خارجی بر توسعه مالی در نیجریه: یک روش نامقارن

Authors [فارسی]

  • ابراهیم سامبو فاروق 1
  • زنیده سولانگ 2
1 دانشکده مدیریت بازرگانی، دانشگاه سلطان زین العابدین، مالزی
2 دانشکده مدیریت بازرگانی، دانشگاه سلطان زین العابدین، مالزی
Abstract [فارسی]

این مقاله اثرات پویای عدم قطعیت سرمایه گذاری مستقیم خارجی بر توسعه مالی در نیجریه و همچنین نقش تعاملی شمول مالی و رشد اقتصادی را بررسی می کند. ما از داده های سری زمانی سالانه نیجریه بین سالهای 1970 تا 2018 استفاده کردیم. با استفاده از تکنیک های پیشرفته اقتصادسنجی، ابتدا سطح ایستایی و ادغام دوسویه میان متغیرهای یافته شده را – که در اصل برای یافته های پایا صورت می گیرد – مشخص گردید. سپس آزمون ادغام دوسویه  گریگوری و هانسن (1996)، ای آر دی ال غیرخطی به عنوان پیش بینی کننده کشش، و آزمون علیت دیکس و پانچنکو (2006) اجرا شد. یافته های تجربی ماهیت نامتقارن عدم قطعیت سرمایه گذاری خارجی را بر توسعه مالی تایید می کند. ما همچنین یک رابطه علی غیرخطی تک سویه بین رشد اقتصادی و توسعه مالی، عدم قطعیت سرمایه گذاری مستقیم خارجی و توسعه مالی، و شمول مالی و توسعه مالی یافتیم. در نهایت، ما چند راهکار مربوط به سیاست گذاری به منظور تقویت بخش مالی نیجریه ارایه می کنیم.

Keywords [فارسی]

  • ای آر دی ال خیرخطی
  • دیکس و پانچنکو
  • گریگوری هانسن
  • تعامل
  • توسعه مالی
Abdi, H., & Williams, L. J. (2010). Principal component analysis. Wiley interdisciplinary reviews: computational statistics2(4), 433-459.
Abu‐Bader, S., & Abu‐Qarn, A. (2008). Financial development and economic growth: Empirical evidence from six MENA countries. Review of Development Economics12(4), 803-817.
Adjasi, C. K., Abor, J., Osei, K. A., & Nyavor‐Foli, E. E. (2012). FDI and economic activity in Africa: The role of local financial markets. Thunderbird International Business Review54(4), 429-439.
Aftab, M., Ahmad, R., & Ismail, I. (2018). Examining the uncovered equity parity in the emerging financial markets. Research in International Business and Finance45, 233-242.
Agbetsiafa, D. (2004). The finance growth nexus: Evidence from Sub-Saharan Africa. Savings and Development[H1] [A2] [A3] , Vol. 28, No. 3 (2004), pp. 271-288 (18 pages).
Ahmad, A. U., Loganathan, N., Streimikiene, D., & Hassan, A. A. G. (2018). Financial instability, trade openness, and energy price on leading African countries’ sustainable growth. Economic Computation and Economic Cybernetics Studies and Research52(1), 127-142.
Akinboade, O. A. (1998). Financial development and economic growth in Botswana: A test for causality/développement financier et croissance économique au botswana: Un test de causalité. Savings and Development[H4] [A5] [A6] , Vol. 22, No. 3 (1998), pp. 331-348 (18 pages) .
Ang, J. B., & McKibbin, W. J. (2007). Financial liberalization, financial sector development and growth: Evidence from Malaysia. Journal of development economics84(1), 215-233.
Ashamu, S. O., Abiola, J. O., & Bbadmus, S. O. (2012). Dividend policy as strategic tool of financing in public firms: Evidence from Nigeria. European Scientific Journal,  vol. 8, No.9. page 1-24
Asongu, S. (2012). On the effect of foreign aid on corruption. Economics Bulletin32(3), 2174-2180.
Asongu, S. (2014). Financial development dynamic thresholds of financial globalization. Journal of Economic Studies[H7] [A8] [A9] . Volume 41 Issue 2, pp. 166-195.
Asongu, S. A., Koomson, I., & Tchamyou, V. S. (2017). Financial globalisation uncertainty/instability is good for financial development. Research in International Business and Finance41, 280-291.
Asongu, S. A., Nwachukwu, J. C., & Tchamyou, V. S. (2016). Information asymmetry and financial development dynamics in Africa. Review of Development Finance6(2), 126-138.
Asongu, S., & De Moor, L. (2015). Financial globalization and financial development in Africa: Assessing marginal, threshold, and net effects. African Governance and Development Institute WP/15/040.
Asongu, S., & S Tchamyou, V. (2015). The comparative African regional economics of globalization in financial allocation efficiency. African Governance and Development Institute WP/15/053.
Asongu, S., Batuo, M., & S Tchamyou, V. (2015). Bundling governance: Finance versus institutions in private investment promotion[H10] [A11] [A12] .AGDI Working Paper WP/15/051, page 1-31
Asongu, S., De Moor, L., & S Tchamyou, V. (2015). Pre-and post-crisis dynamics of financial globalization for financial development in Africa[H13] [A14] [A15] . AGDI Working Paper No. WP/15/045. Page 1-26
Asongu, S., Efobi, U., & Beecroft, I. (2015). Inclusive human development in pre‐crisis times of globalization‐driven debts. African Development Review27(4), 428-442.
Atindéhou, R. B., Gueyie, J. P., & Amenounve, E. K. (2005). Financial intermediation and economic growth: Evidence from Western Africa. Applied Financial Economics15(11), 777-790.
Auzairy, N. A., Kek Wai Hin, K., Pang, H. X., & Yong, L. T. (2020). The impact of China’s investment on Malaysia. Iranian Journal of Management Studies13(1), 51-68.
Azzimonti, M., De Francisco, E., & Quadrini, V. (2014). Financial globalization, inequality, and rising public debt. American Economic Review104(8), 2267-2302.
Bahmani‐Oskooee, M., & Aftab, M. (2017). Asymmetric effects of exchange rate changes and the J‐curve: New evidence from 61 Malaysia–Thailand industries. Review of Development Economics21(4), e30-e46.
Batuo, M., Mlambo, K., & Asongu, S. (2018). Linkages between financial development, financial instability, financial liberalisation and economic growth in Africa. Research in International Business and Finance45, 168-179.
Bhagwati, J. (1998). The capital myth: The difference between trade-in widgets and dollars. Foreign Affairs[H16] [A17] [A18] , Vol. 77, No. 3 (May - Jun., 1998), pp. 7-12 (6 pages) .
Brambila‐Macias, J., & Massa, I. (2010). The global financial crisis and Sub‐Saharan Africa: The effects of slowing private capital inflows on growth. African Development Review22(3), 366-377.
Calderón, C., & Liu, L. (2003). The direction of causality between financial development and economic growth. Journal of development economics72(1), 321-334.
Chauvin, S., and Geis, A., (2011). “Who has been affected, how and why? The spillover of the global financial crisis to Sub-Saharan Africa and ways to recovery”, Occasional Paper Series, No. 124, page 1-54 Frankfurt
Čihák, M., Mare, D. S., & Melecky, M. (2016). The nexus of financial inclusion and financial stability: A study of trade-offs and synergies. World Bank Policy Research Working Paper, (7722).
Claessens, S., Kose, M. A., & Terrones, M. E. (2011, May). Financial cycles: what? How? When?. In The University of Chicago Press [H19] [A20] [A21] (Eds.) International seminar on macroeconomics, 7(1), 303-344. Chicago, IL: University of Chicago Press.
Demetriades, P. O., & Hussein, K. A. (1996). Does financial development cause economic growth? Time-series evidence from 16 countries. Journal of Development Economics51(2), 387-411.
Diks, C., & Panchenko, V. (2006). A new statistic and practical guidelines for nonparametric Granger causality testing. Journal of Economic Dynamics and Control30(9-10), 1647-1669.
Efobi, U., Asongu, S., Okafor, C., Tchamyou, V., & Tanankem, B. (2019). Remittances, finance and industrialisation in Africa. Journal of Multinational Financial Management49, 54-66.
Engle, R.F. and Granger, C.W.J. (1987) Co-integration and Error Correction: Representation, Estimation and Testing. Econometrica 50, 987–1007.
Eubank, N. (2012). Taxation, political accountability and foreign aid: Lessons from Somaliland. Journal of Development Studies48(4), 465-480.
Falqi, I., Alsulamy, S., & Mansour, M. (2020). Environmental performance evaluation and analysis using ISO 14031 guidelines in construction sector industries. Sustainability12(5), 1774.
Farouq, I. S., & Sulong, Z. (2020). The impact of economic growth, oil price, and financial globalization uncertainty on financial development: Evidence from selected leading african countries. International Journal of Business7(5), 274-289.
Farouq, I. S., Sulong, Z., & Sambo, N. U. (2020). An empirical review of the role economic growth and financial globalization uncertainty plays on financial development. Innovation3(1), 48-63.
Farouq, I. S., Sulong, Z., Ahmad, A. U., Jakada, A. H., & Sambo, N. U (2020a). The effects of economic growth on financial development in Nigeria: Interacting role of foreign direct investment: An application Of NARDL[H22] [A23] [A24] . VOLUME 9, ISSUE 03, page 6321- 6328
Farouq, I., Sulong, Z., Ahmad, U., Jakada, A., & Sambo, N. (2020b). Heterogeneous data approach on financial development of selected African leading economies. Data in Brief, 105670. Volume 30, page 1-7
Fischer, H. W. (1998). Response to disaster: Fact versus fiction & its perpetuation: The sociology of disaster. University press of America. Session No. 17, Canadian Summits: Selections From The Canadian Alpine Journal
Fouda Owoundi, J. P. (2009). The mitigated outcome of banking reforms in Central Africa: The paradoxes of financial development. Economie Appliquee62(3), 73.
Ghirmay, T. (2004). Financial development and economic growth in Sub‐Saharan African countries: Evidence from time-series analysis. African Development Review16(3), 415-432.
Greenwood, J., & Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of Political Economy98(5, Part 1), 1076-1107.
Greenwood, J., & Smith, B. D. (1997). Financial markets in development, and the development of financial markets. Journal of Economic Dynamics and Control21(1), 145-181.
Gregory, A. W., & Hansen, B. E. (1996). Practitioners corner: tests for cointegration in models with regime and trend shifts. Oxford bulletin of Economics and Statistics58(3), 555-560.
Hiemstra, C., & Jones, J. D. (1994). Testing for linear and nonlinear Granger causality in the stock price‐volume relation. The Journal of Finance49(5), 1639-1664.
IMF (International Monetary Fund). (2018). World economic outlook.
IFAD (2011). Gender and Rural Microfinance: Reaching and Empowering Women. Guide for Practitioners. Rome: International Fund for Agricultural Development.
King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The quarterly journal of economics108(3), 717-737.
Kutan, A. M., Samargandi, N., & Sohag, K. (2017). Does institutional quality matter for financial development and growth? Further evidence from MENA countries. Australian Economic Papers56(3), 228-248.
Leung, K., Bhagat, R. S., Buchan, N. R., Erez, M., & Gibson, C. B. (2005). Culture and international business: Recent advances and their implications for future research. Journal of international business studies36(4), 357-378.
Levine, R., & Zervos, S. J. (1993). What have we learned about policy and growth from cross-country regressions? The American Economic Review83(2), 426-430.
Lucas Jr, R. E. (1988). On the mechanics of economic development. Journal of monetary economics22(1), 3-42.
Mohd Amin, S. I., & Abdul-Rahman, A. (2020). The role of regulation in Banking: Liquidity risk perspective. Iranian Journal of Management Studies13(3), 391-412.
Mokhtari, G., & Aghagoli, F. (2020). Project portfolio risk response selection using Bayesian belief networks. Iranian Journal of Management Studies13(2), 197-219.
Ndako, U. B. (2010). Stock markets, banks and economic growth: Time series evidence from South Africa. African Finance Journal12(2), 72-92.
Obstfeld, M. (1998). The global capital market: benefactor or menace?. Journal of economic perspectives12(4), 9-30.
Odhiambo, N. M. (2008). Financial depth, savings, and economic growth in Kenya: A dynamic causal linkage. Economic Modelling25(4), 704-713.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics16(3), 289-326.
Prasad, E. S., & Rajan, R. G. (2008). A pragmatic approach to capital account liberalization. Journal of Economic Perspectives22(3), 149-72.
Price, G. N., & Elu, J. U. (2014). Does regional currency integration ameliorate global macroeconomic shocks in sub-Saharan Africa? The case of the 2008-2009 global financial crisis. Journal of Economic Studies[H25] [A26] [A27] . Vol. 41 No. 5, pp. 737-750.
Rateiwa, R., & Aziakpono, M. J. (2017). Non-bank financial institutions and economic growth: Evidence from Africa's three largest economies. South African Journal of Economic and Management Sciences20(1), 1-11.
Robinson, J., 1952. The rate of interest and other essays. Macmillan 1952. Macmillan. 170 p.
Rodrik, D. (1998). Has globalization gone too far? Challenge41(2), 81-94.
Rogoff, K. (1999). International institutions for reducing global financial instability. Journal of Economic Perspectives13(4), 21-42.
Romer, P. M. (1986). Increasing returns and long-run growth. Journal of political economy94(5), 1002-1037.
Rousseau, P. L., & Wachtel, P. (2011). What is happening to the impact of financial deepening on economic growth?. Economic inquiry49(1), 276-288.
Sainz-Fernández, I., Torre-Olmo, B., & López-Gutiérrez, C. (2018). Microfinance as an alternative to the imperfections of the financial system. In S. Boubaker, D. Cumming, & D. K. Nguyen (Eds.), Handbook of finance and sustainability (pp: 268–286).. Edward Elgar Publishing.
Saxegaard, M. (2006). Excess liquidity and the effectiveness of monetary policy: Evidence from Sub-Saharan Africa (No. 6-115). International Monetary Fund.
Schumpeter, J. (1911). The theory of economic development. Harvard Economic Studies.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2009, May). Modeling asymmetric co-integration and dynamic multipliers in an ARDL framework. In International Conference on Applied Economics and Time Series Econometrics, Leeds University Business School UK.
Shlens, J. (2014). A tutorial on principal component analysis. arXiv preprint arXiv:1404.1100 [cs.LG]. Version (3.02). page 1-12
Solow, R. M. (1956). A contribution to the theory of economic growth. The quarterly Journal of Economics70(1), 65-94.
Soludo, C. C., & Governor, C. F. R. (2009). Banking in Nigeria at a time of global financial crisis. Being a speech read at the special interactive session on the banking system, Lagos. Page 1-22
Staples, P., Ouyang, M., Dougherty, R. F., Ryslik, G. A., & Dagum, P. (2018). Supervised Kernel PCA For Longitudinal Data. arXiv preprint arXiv:1808.06638. page i-17
Stiglitz, J. E. (2000). Capital market liberalization, economic growth, and instability. World Development28(6), 1075-1086.
Summers, L. H. (2000). International financial crises: Causes, prevention, and cures. American Economic Review90(2), 1-16.
Tsaurai, K. (2018). What Are the determinants of stock market development in emerging markets? Academy of Accounting and Financial Studies Journal[H28] [A29] [A30] . Vol. 22, Iss. 2,  (2018): 1-11.
World Bank. (2017). World Bank country and lending groups[H31] [A32] [A33] .
World Bank. Information, Communication Technologies, & infoDev (Program). (2012). Information and Communications for development 2012: Maximizing mobile. World Bank Publications.
World Bank. (2018). World development report 2019: The changing nature of work. World Bank Publications.
 World Bank. (2019). Global Financial Development Report 2019/2020: Bank regulation and supervision a decade after the global financial crisis. The World Bank.