Does Financial Development Condition the Association Between Foreign Direct Investment and Human Development in Africa?

ABSTRACT This study examines whether financial development conditions the association between foreign direct investment (FDI) and human development in Africa. Using an unbalanced panel of 52 African countries from 1995 to 2024, we estimate baseline and interaction Seemingly Unrelated Regression (SUR) models for the Human Development Index (HDI) and its life expectancy, education, and income dimensions. The baseline estimates show that FDI is positively and significantly associated with HDI and all three components, with the largest coefficient for education. The FDI–financial‐development interaction is negative and significant for HDI, education, and income, indicating that the marginal association between FDI and human development weakens as financial development rises. This attenuation is stronger for financial markets, where the interaction is negative and significant across all four outcomes, than for financial institutions, where significance is concentrated mainly in HDI and income. Dimension‐level results point to institutional depth and market efficiency as the most consistent sources of the conditioning pattern, while access interactions are weak. Lagged SUR estimates preserve the main pattern, but country and year fixed‐effects estimates are weaker. The evidence is therefore interpreted as pooled, lagged, and sensitivity‐based association evidence, not as causal identification. A Planetary pressures‐adjusted HDI check provides partial support. The findings suggest that FDI policy should not be judged by inflow volumes alone; attention should shift to investment composition, domestic embeddedness, and the depth and efficiency of domestic finance.