The FDI and Economic Growth Controversy in Sub-Saharan Africa

  • Yemane Michael
Chapter

Abstract

This paper analyzes the impact of foreign direct investment (FDI) on economic growth in sub-Saharan African (SSA) countries for which relevant macroeconomic data is available for the period 2001–2015. To attain this objective it develops a dynamic panel system Generalized Method of Moments (GMM) model to capture the impact of FDI on economic growth. The choice of GMM is not haphazard or without purpose. It is superior to other models in that it takes care of endogeneity problems and alleviates possible biases in estimation. Forty-three SSA countries for which data is available were included in the study. The countries were categorized into ‘resource-rich’ and ‘resource-poor’ on the basis of the IMF (2013) classification using data about natural resource endowments and other factors. Our study found that there is no meaningful difference in the growth of per capita GDP and in the countries’ abilities to attract FDI inflows. Our findings indicate that FDI had a negative and statistically significant effect on the growth rate of per capita GDP in SSA for the period under consideration. However, the own lagged value of the growth rate of per capita GDP, gross capital formation (which is used as a proxy for domestic investment) and exports had a positive and statistically significant effect on the growth rate of per capita income.

Keywords

FDI Economic growth SSA Dynamic system GMM 

JEL Classification Codes

C13 C23 E22 F21 F43 

Notes

Acknowledgements

I would like to thank my main supervisor Professor Almas Heshmati, Jonkoping University, Sweden, for his contribution in improving the quality of this paper. I am also grateful for the help that I got from my co-supervisor Dr Adane Tuffa, Addis Ababa University, Ethiopia. Thanks are also due to my friends Fikru Debelie and Kahsay Berhane for their comments after reading certain sections of this paper. My special thanks also to the participants from the University of Rwanda (UR) International Scientific Conference Week that was held on 14–16 June 2017. However, all errors that are there are mine.

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Yemane Michael
    • 1
    • 2
  1. 1.Department of EconomicsCollege of Business and Economics, Addis Ababa UniversityAddis AbabaEthiopia
  2. 2.University of GondarGondarEthiopia

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