TY - JOUR
T1 - Effect of Infrastructure and Foreign Direct Investment on Economic Growth in Sub-Saharan Africa
AU - Nketiah-Amponsah, Edward
AU - Sarpong, Bernard
N1 - Publisher Copyright:
© 2019 Emerging Markets Institute, Beijing Normal University.
PY - 2019/9/1
Y1 - 2019/9/1
N2 - This article investigates the effect of infrastructure and foreign direct investment (FDI) on economic growth in Sub-Saharan Africa (SSA) using panel data on 46 countries covering the period 2003–2017. The data were analyzed using fixed effects, random effects, and system generalized method of moments (GMM) estimation techniques. Based on the system GMM estimates, the results indicate that a 1 percent improvement in electricity and transport infrastructure induces growth by 0.09 percent and 0.06 percent, respectively. Additionally, FDI proved to be growth enhancing only when interacted with infrastructure. The interactive effect of FDI and infrastructure improves economic growth by 0.016 percent. The results suggest that public provision of economic infrastructure reduces the cost of production for multinational enterprises, thus providing an incentive to increase investment in the domestic economy to sustain economic growth. The results also suggest that the impact of FDI on economic growth is maximized when some level of economic infrastructure is available. Our findings thus provide ample justification on the need for a significant government investment in infrastructure to provide a less costly business environment for both local and multinational enterprises to improve economic growth.
AB - This article investigates the effect of infrastructure and foreign direct investment (FDI) on economic growth in Sub-Saharan Africa (SSA) using panel data on 46 countries covering the period 2003–2017. The data were analyzed using fixed effects, random effects, and system generalized method of moments (GMM) estimation techniques. Based on the system GMM estimates, the results indicate that a 1 percent improvement in electricity and transport infrastructure induces growth by 0.09 percent and 0.06 percent, respectively. Additionally, FDI proved to be growth enhancing only when interacted with infrastructure. The interactive effect of FDI and infrastructure improves economic growth by 0.016 percent. The results suggest that public provision of economic infrastructure reduces the cost of production for multinational enterprises, thus providing an incentive to increase investment in the domestic economy to sustain economic growth. The results also suggest that the impact of FDI on economic growth is maximized when some level of economic infrastructure is available. Our findings thus provide ample justification on the need for a significant government investment in infrastructure to provide a less costly business environment for both local and multinational enterprises to improve economic growth.
KW - Economic growth
KW - Sub-Saharan Africa
KW - foreign direct investment
KW - infrastructure
KW - system GMM
UR - http://www.scopus.com/inward/record.url?scp=85075331226&partnerID=8YFLogxK
U2 - 10.1177/0974910119887242
DO - 10.1177/0974910119887242
M3 - Article
AN - SCOPUS:85075331226
SN - 0974-9101
VL - 11
SP - 183
EP - 201
JO - Global Journal of Emerging Market Economies
JF - Global Journal of Emerging Market Economies
IS - 3
ER -