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Financial Sector Governance and Poverty Alleviation in Sub-Saharan Africa: The Moderating Role of Foreign Direct Investment

Article DOI: https://doi.org/10.57017/ajelg.v2.i1(3).08
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Author(s):
  • Sié Ernest YOUL Center for Economic and Social Studies, Documentation and Research University Thomas SANKARA, Saaba, Burkina Faso
Abstract:

This article examines the effects of financial development on multidimensional poverty in 35 Sub-Saharan African countries over the period 2006–2020. Using two-stage least squares and instrumental-variables quantile regression, the results show that financial development reduces multidimensional poverty in Sub-Saharan Africa (SSA), and that this effect varies across the distribution of multidimensional poverty. The results also indicate that countries receiving higher levels of FDI are likely to see their multidimensional poverty decline as a result of financial sector development. However, the effects of financial development and FDI on poverty are influenced by institutional quality. Corruption limits their impact, thereby exacerbating poverty. 

These findings confirm the central role of financial development and FDI as levers for improving the living conditions of vulnerable populations in developing countries. These findings thus call on policymakers to encourage FDI and stimulate financial sector development in order to reduce multidimensional poverty in SSA. They also recommend prioritizing improvements to governance and anti-corruption mechanisms. Public authorities should improve transparency in the allocation of funds and foreign investment, strengthen the independence of oversight institutions, and ensure the effective enforcement of contracts. These improvements to the institutional framework would help channel financial flows and FDI towards productive and inclusive sectors, thereby ensuring a more equitable redistribution of growth gains and an effective reduction in poverty.


© The Author(s) 2026. Published by RITHA Publishing. This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited maintaining attribution to the author(s) and the title of the work, journal citation and URL DOI.


Article’s history: Received 4th of April, 2026; Revised 19th of May, 2026; Accepted for publication 29th of May, 2026; Available online: 5th of June, 2026; Published as research article in Volume II, Issue 1(3), 2026.


How to cite:

Youl, S. E. (2026). Financial Sector Governance and Poverty Alleviation in Sub-Saharan Africa: The Moderating Role of Foreign Direct Investment. Applied Journal of Economics, Law and Governance, Volume II, Issue 1(3), 139-156. https://doi.org/10.57017/ajelg.v2.i1(3).08 


CRediT Authorship Contribution Statement: Sié Ernest YOUL: Conceptualization, Data curation, Formal analysis, Investigation, Methodology, Software, Writing – original draft, Writing – review & editing. 


Conflict of Interest Statement: The author has no conflicts of interest to declare.


Funding Statement: This research did not receive any specific funding from public, commercial, or not-for-profit funding bodies.


Data Availability Statement: The data used in this study are derived from publicly available international databases. Data on multidimensional poverty were obtained from the Global Multidimensional Poverty Index (MPI) database, while data on financial development were sourced from the International Monetary Fund (IMF) Financial Development Database. Macroeconomic and governance indicators, including GDP per capita, trade openness, inflation, population growth, foreign direct investment, and control of corruption, were obtained from the World Bank’s World Development Indicators (WDI) database. All datasets used in the analysis are publicly accessible through the respective data providers. The compiled dataset and related analytical files used to generate the reported results are available from the corresponding author upon reasonable request.


Ethical Approval Statement: This study is based exclusively on secondary data obtained from publicly available international databases and does not involve human participants, animal subjects, personal data, or confidential information. Consequently, ethical approval from an institutional review board or ethics committee was not required. All data were collected, processed, and analysed in accordance with the terms of use of the respective data providers. The study adheres to the principles of research integrity, transparency, and reproducibility. The analytical procedures and data sources are fully documented to facilitate verification and replication of the results.


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