Foreign direct investment, spillover effects and economic growth in Africa
Date
2020
Authors
Asafo-Agyei, George Obodum-Kusi
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Abstract
This study examined the relationship between Foreign Direct Investment (FDI) and economic growth in
Sub-Saharan Africa. The Hansen threshold regression model was used to examine the nature of the
relationship between FDI and economic growth as well as the mediating role of absorptive capacity of the
selected countries in Sub-Saharan Africa. Battesse and Coelli stochastic frontier was employed to examine
efficiency gains from FDI inflows in the selected countries of Sub-Saharan Africa. Pedroni panel
cointegration approach was used to assess the relevance of sectoral FDI on sectoral growth of the selected
countries in Sub-Saharan Africa. Finally, the study employed OLS for the estimation of spillover effects of
FDI inflows on the productivity of domestic manufacturing firms in the selected countries of Sub-Saharan
Africa. This study establishes that the relationship between FDI and economic growth of the selected
countries in Sub-Saharan Africa is non-linear in nature.
The threshold level in this study has been estimated to be approximately US$ 44.93 per annum. The study
also found that inflows into the selected Sub-Saharan Africa countries improve the level of efficiency in
the production structure. The study further established that sectoral FDI inflow emanating from primary
sources proffer significant effect on the economic growth of the selected countries in Sub-Saharan Africa.
Sectoral FDI inflows from secondary sources do not significantly contribute to economic growth of selected
countries in the region. However, FDI inflows from tertiary sources exert significant effect on economic
growth in Sub-Saharan Africa. Finally, the study revealed that FDI spillover exerts significant effects on
domestic manufacturing firms’ productivity of the selected countries in Sub-Saharan Africa.
It is recommended that heads of investment promotion agencies of the selected countries should market
their economies well to attract the required level of FDI ($44 FDI per capita and beyond) to enhance the
growth prospects of those economies. The marketing strategies could for instance take the form of organisation of international conferences on the prospects of high domestic demand of FDI products, the
hospitability and hardworking nature of a country’s citizens and to mention a few.
Description
A thesis submitted in fulfilment of the requirements for the degree of Doctor of Philosophy to the Faculty of Commerce, Law and Management in the Graduate School of Business Administration, Wits Business School, University of the Witwatersrand, Johannesburg, 2020