Abstract
<title>Abstract</title> <p>This study examines the relationships among financial development, foreign direct investment (FDI), and private sector development in Sierra Leone over the period 1996–2024, using annual data from the World Bank, World Development Indicators (WDI) and the Worldwide Governance Indicators (WGI). An autoregressive distributed lag (ARDL) framework is employed alongside moderation analysis and Granger causality tests to investigate long-run and short-run dynamics. The analysis finds that financial development and institutional quality — measured by government effectiveness, regulatory quality, and rule of law — are positively and significantly associated with private sector development in the long run. Foreign direct investment(FDI) exhibits a positive and significant association in the model incorporating government effectiveness, though results are mixed across institutional specifications. The moderation analysis indicates that institutional quality conditions the relationship between foreign direct investment (FDI) and private sector outcomes, with government effectiveness exerting the strongest moderating effect. The error-correction term is negative and significant at the 10% level, consistent with long-run equilibrium adjustment. Granger causality results reveal a unidirectional causal flow from foreign direct investment(FDI) to private sector development but bidirectional causality between financial development and private sector outcomes. The findings contribute to the literature on the foreign direct investment(FDI) –finance–institution nexus in sub-Saharan Africa and carry implications for financial sector deepening and institutional reform in Sierra Leone.</p>