The impact of foreign direct investment on financial sector development: a case of the Mena Region

Abstract

Various studies on international capital flows have established the deterministic role of local financial markets on the attractiveness of countries to inflow of foreign direct investment. The current study investigated the impact of FDI inflows on the financial sector development of countries in the Middle East and North Africa region for the period 2003 to 2016. Various panel data analysis methods were employed. These approaches included fixed effects, random effects, pooled OLS, FMOLS and the dynamic GMM. In addition, pre-estimation tests, diagnostic tests which included panel unit root and co-integration tests and robustness tests were conducted. Using both financial development proxies, broad money as a ratio of GDP (model 1) and domestic credit to the private sector (model 2), the study found that the lag in financial development had a significant positive effect on financial development. In model 1 under fixed effects, random effects and pooled OLS, FDI had a significant negative effect on financial development. In contrast, model 2 showed a significant positive relationship running from FDI to financial development under the pooled OLS method. The interaction between FDI and economic growth was found to have a significant negative influence on financial development in models 1 and 2 under the pooled OLS method. This finding indicates that economic growth had a deleterious effect on the impact of FDI on financial development in the MENA region. In the light of these results, policy makers in the MENA region countries should be urged to avoid undue reliance on FDI in their efforts to develop their financial sectors. Furthermore, the MENA region nations are urged to avoid implementing economic growth enhancement policies as a way of trying to improve financial development, directly or indirectly, as the effort has been shown to achieve the opposite effect.

Verskeie studies wêreldwyd oor die vloei van internasionale kapitaal is dit eens dat aantreklike plaaslike finansiële markte direkte buitelandse beleggings (DBB) na lande laat stroom. Hierdie studie het die uitwerking van DBB in die tydperk 2003 tot 2016 op die finansiële sektore van lande in die Midde Oosterse en Noord-Afrikaanse (MONA) streek ondersoek. Verskeie paneeldataontledingsmetodes is gevolg, waaronder vaste en ewekansige effekte, saamgevoegde, gewone kleinstekwadratemetode (GKK), volgewysigde kleinstekwadratemetode (VGKK) en die dinamiese, veralgemeende metode van momente (VMM). Afgesien hiervan is voorberamings- en diagnostiese toetse, waaronder paneeleenheidswortel-, koïntegrasie- en robuustheidstoetse, toegepas. Op grond van sowel volmagte vir finansiële ontwikkeling, breë geld – as ʼn verhouding van die BBP (model 1) – as binnelandse krediet aan die privaat sektor (model 2), is bevind dat die vertraging in finansiële ontwikkeling ʼn opmerklik positiewe effek op finansiële ontwikkeling uitgeoefen het. In model 1, onder vaste effekte, ewekansige effekte en saamgevoegde GKK, het DBB ʼn opmerklik negatiewe effek op finansiële ontwikkeling gehad. Model 2, daarenteen, het onder die saamgevoegde GKK-metode op ʼn opmerklik positiewe verband tussen DBB en finansiële ontwikkeling gedui. Daar is in model 1 en 2 onder die saamgevoegde GKK bevind dat die wisselwerking tussen DBB en ekonomiese groei ʼn opmerklik negatiewe effek op finansiële ontwikkeling gehad het. Hierdie bevinding is ʼn aanduiding daarvan ekonomiese groei ʼn nadelige effek op die uitwerking van DBB op finansiële ontwikkeling in die MENA-streek gehad het. In die lig hiervan moet die beleidsmakers van lande in die MONA-streek teen oormatige steun op DBB om hulle finansiële sektore te laat ontwikkel, gemaan word. Hierbenewens moet lande in die MONAstreek teen beleide vir ekonomiese groei as ʼn manier om finansiële ontwikkeling regstreeks of onregstreeks aan te wakker, gewaarsku word omdat dit die teenoorgestelde uitwerking sal hê.

Izifundo zocwaningo ezahlukahlukene ekuthunyelweni kwezimali sezisungule indima yezimpawu ezikhombisayo zokuthunyelwa kwezimali ezimakethe zasemakhaya mayelana nekhono lamazwe lokuheha ukutshalwa kwezimali okuqondile. Ucwaningo lwamanje luye lwaphenya umthintela wokungena kwezimali ngohlelo lokutshalwa kwezimali ngaphandle, phecelezi FDI mayelana nokuthuthukiswa komkhakha wezezimali emazweni asesiyingini esiseMpumalanga eMaphakathi (Middle East) kanye kanye nase-Afrika eseNyakatho (North Africa (MENA), ukusukela onyakeni ka 2003 ukufika ku 2016. Izindlela ezahlukahlukene zokuhlaziya ipanel data analysis ziye zasetshenziswa. Lezi zindlela ziye zaxuba imiphumela enqunyelwe isikhathi, imiphumela enganqunyelwanga isikhathi, uhlelo lwe pooled OLS, lwe FMOLS kanye nohlelo oluguquguqukayo lwe GMM. Ngaphezu kwalokho, izinhlelo zokuhlolwa phecelezi, pre-estimation tests kanye ne diagnostic tests, lokhu okuyizinhlelo ezixuba amayunidi ephaneli panel unit root kanye nohlelo lwe cointegration tests kanye nohlelo lwe robustness tests, nazo ziye zaxutshwa phakathi. Ngokusebenzisa zombili izinhlelo zokuthuthukiswa kwezinhlelo zezimal, imali ebanzi – njengesilinganiso semodeli 1 yeGDP – kanye nesikweletu sasekhaya esinikezwa imikhakha yamabhizinisi angasese asekhaya (imodeli 2), ucwaningo luthole ukuthi ukubambezeleka kwesikhathi sokuthuthukiswa kwezinhlelo zezimali kuye kwaba nomthelela omuhle kakhulu ekuthuthukisweni kwezimali. Kumodeli 1, ngaphansi kohlelo lwemiphumela enqunyelwe isikhathi, kwemiphumela enganqunyelwanga iskhathi kanye nasohlelweni lwe pooled OLS, uhlelo lwe FDI luye lwaba nomthelela omubi kakhulu kwezokuthuthukiswa kwezimali. Okuphikisana nalokho, imodeli 2 iye yakhombisa ubudlelwano obuhle kakhulu, ukuqala ohlelweni lokutshalwa kwezimali emazweni angaphandle (FDI) ukufika ohlelweni lwezokuthuthukiswa kwezinhlelo zezimali, ngaphansi kohlelo lwe pooled OLS. Ukuhlangana phakathi kohlelo lwe FDI kanye nokuhluma komnotho kutholakele ukuthi luye lwaba nomthelela omubi kakhulu ekuthuthukisweni kwezinhlelo zezimali, kumamodeli 1 nemodeli 2, ngaphansi kohlelo lwe pooled OLS. Lolu lwazi olutholakele lukhombisa ukuthi ukuhluma komnotho kuye kwaba nomthelela oyingozi kakhulu ohlelweni lwe FDI mayelana nokuthuthukiswa kwezimali esiyingini seMENA. Uma kubhekwa le miphumela, abenzi bemigomo emazweni asesiyingini seMENA kufanele bacelwe ukuba bagweme ukwencika ngendlela engenasidingo ohlelweni lwe FDI kwimizamo yabo yokuthuthukisa imikhakha yezimali. Ngaphezu kwalokho, amazwe asesiyingini saseMENA ayacelwa ukuba agweme ukusetshenziswa kwemigomo eqinisa ukuthuthukiswa komnotho njengendlela yokuzama ukuthuthukisa izinhlelo zezimali, ngendlela eqondile nangendlela engaqondile, njengoba umzamo sewukhonjiswe ukuze kuphunyelelwe imiphumela engaqondiwe.