Robust Empirical Study of the Moderating Role of Human Capital and Natural Resources on the Effects of COVID-19 and Financial Development on Foreign Direct Investment: Evidence from Sub-Saharan Africa

Authors : Obaıke Ojeka, Favour Odey, Deborah Adebayo, Gideon Amodu, Daniel Buba
Pages : 1-27
Doi:10.26650/JEPR1345184
View : 84 | Download : 66
Publication Date : 2025-02-14
Article Type : Research Paper
Abstract :This study explores the moderating role of human capital and natural resources on the effects of Coronavirus Disease 2019 (COVID-19) and financial development on foreign direct investment in 42 sub-Saharan African countries. The analyses were conducted using panel data sourced from the World Bank from 1996 to 2021. The two-step system Generalised Method of Moments (GMM) was adopted as the main estimation strategy, while Driscoll and Kraay’s Nonparametric Covariance Matrix and Dynamic Threshold Estimators were employed as robustness analyses to account for dynamic threshold effects and cross-sectional dependencies in the panel. The findings show that COVID-19 acts as a shock that increases investment risk and disrupts supply chains, negatively affecting FDI inflows. In addition, financial development was identified as a positive driver of foreign investment. Furthermore, economies with human capital below a life expectancy of 52 years did not experience the beneficial effects of financial development in attracting foreign investment. Overall, human capital moderates the positive effects of financial development on FDI, whereas the moderating effect of natural resources is insignificant. Therefore, policymakers in the region should prioritise human capital formation by investing in health and education sectors to maximise the benefits of financial development on foreign direct investment inflows into sub-Saharan Africa. JEL Classification : F21 , O55 , I15
Keywords : Financial Development, COVID-19, Foreign Direct Investment, Natural Resources, Human Capital, Sub-Saharan Africa, Two-Step GMM

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