Finance–growth nexus and sustainable development in West Africa

Abstract

Purpose

With the rising global emphasis on sustainable development (SD) and the attendant race to attain the sustainable development goals (SDGs), this study empirically examines the effect of the finance–economic growth nexus on SD in West Africa for the period 1970 to 2020.

Design/methodology/approach

The study adopted the panel autoregressive distributive lag (PARDL) and rests on the estimates of the pooled mean group (PMG) model in line with the outcome of the Hausman test.

Findings

The result indicates that financial development reinforces the positive influence of economic growth on SD in addition to the direct incremental impact they wield on SD. This suggests that financial development is one of the “influencing factors” and is positioned to potentially improve the relationship between economic growth and SD in West Africa. Findings further reveal that foreign direct investment (FDI) enhances the achievement of SD in West Africa whereas carbon dioxide (CO₂) emissions and natural resource rent (NRR) are found to exert a deteriorating impact.

Practical implications

Since financial development is found to enhance the growth–SD relationship, it is crucial to pursue domesticated, inclusive and self-sustaining growth policies as well as promote financial inclusion, remove bottlenecks and inefficiencies in the financial system and adopt the principles of the 3 Rs - “reduce, reuse and recycle.”

Originality/value

Compared to previous studies that examined the effect of financial development and growth on SD separately, the present study interacted both to see how financial development can influence the economic growth–SD nexus.

Citation

AbdulKareem, H.K.K., Jimoh, S.O. and Akande, R.S. (2024), "Finance–growth nexus and sustainable development in West Africa", African Journal of Economic and Management Studies, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/AJEMS-01-2024-0005