Financial Development, FDI, and Economic Growth in Low- and Middle-Income Countries: A Dynamic Panel Threshold

Abdalla Sirag; Hamisu S. Ali; Zakaria Lacheheb; Osman S. Ahmed; Emad E. Omer

doi:10.28991/HEF-2025-06-01-013

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Abdalla Sirag College of Economics and Management, Al Qasimia University, Sharjah,, United Arab Emirates
Hamisu S. Ali Department of Economics, Faculty of Social and Management Science, Adamawa State University, Mubi,, Nigeria
Zakaria Lacheheb Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, Gombak,, Malaysia
Osman S. Ahmed
osman.siraj@ukf.ac.ae
College of Arts, Sciences and Information Technology, University of Khorfakkan, Sharjah,, United Arab Emirates
Emad E. Omer College of Mass Communication, Ajman University,, United Arab Emirates

Vol. 6 No. 1 (2025): March

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The study investigates the nonlinear relationship between financial development and economic growth, with a particular focus on the mediating role of FDI in low- and middle-income countries. Using annual panel data covering 81 countries from 1990 to 2019, the study applies a dynamic panel threshold regression model to identify the level of financial development at which its impact on economic growth changes. The analysis incorporates FDI as an additional conditioning variable to examine how its interaction with financial development influences the threshold dynamic. A significant threshold effect: below a certain level of financial development, the impact of FDI on growth is statistically insignificant, while above the threshold, FDI exerts a strong positive influence on economic growth. The findings imply that the growth-enhancing effect of financial development is not automatic and depends on reaching a critical level of financial maturity, as well as an enabling environment that leverages FDI inflows. The study contributes to the literature by offering empirical evidence of a nonlinear, FDI-conditioned finance-growth nexus, and it provides policy guidance for developing economies aiming to optimize the benefits of financial sector reforms.

Doi: 10.28991/HEF-2025-06-01-013

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Sirag, A., Ali, H. S., Lacheheb, Z., Ahmed, O. S., & Omer, E. E. (2025). Financial Development, FDI, and Economic Growth in Low- and Middle-Income Countries: A Dynamic Panel Threshold. Journal of Human, Earth, and Future, 6(1), 203–218. https://doi.org/10.28991/HEF-2025-06-01-013

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Financial Development, FDI, and Economic Growth in Low- and Middle-Income Countries: A Dynamic Panel Threshold

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Financial Development, FDI, and Economic Growth in Low- and Middle-Income Countries: A Dynamic Panel Threshold

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Most Cited Articles

Assessment of the Presence of Pharmaceutical Compounds in Wastewaters and in Aquatic Environment

Utilization Management to Ensure Clean Water Sources in Coastal Areas

Alternative Fuel: Hydrogen and its Thermodynamic Behaviour

Eco-Friendly Asphalt Approach for the Development of Sustainable Roads