Foreign Direct Investment and Economic Growth in SSA: The Role of Institutions

Elikplimi Komla Agbloyor, Agyapomaa Gyeke-Dako, Ransome Kuipo, Joshua Yindenaba Abor

Research output: Contribution to journalArticlepeer-review

89 Citations (Scopus)

Abstract

This article examines the relationship among foreign direct investment (FDI), institutions and economic growth in sub-Saharan Africa in different country environs. We employ a two-step generalized methods of moments estimator with Weidmeijer corrected standard errors and orthogonal deviations to examine the empirical relations. In the full sample, we do not find evidence that FDI promotes growth. We also do not find a significant relationship between institutions and economic growth. Finally, we do not find convincing evidence that institutions alter favorably the effect of FDI on economic growth. In the subsample that excludes countries with developed financial markets, again we do not find a significant relation between FDI and economic growth. However, we find evidence suggesting that institutions play a direct role in spurring economic growth. Further, the quality of institutions seems to alter favorably the relationship between FDI and economic growth. Finally, in the sample that excludes countries with abundant natural resources, we find a direct and positive relationship between FDI and economic growth. We also find a direct relationship between institutions and economic growth. The growth-enhancing effects of FDI, however, seem to reduce as the quality of institutions improves. The major implication from our study is that countries should take into consideration their own realities when they fashion policies to benefit from FDI in terms of achieving better growth outcomes.

Original languageEnglish
Pages (from-to)479-497
Number of pages19
JournalThunderbird International Business Review
Volume58
Issue number5
DOIs
Publication statusPublished - 1 Sep 2016
Externally publishedYes

Keywords

  • Economic Growth
  • Foreign Direct Invest
  • Institutions
  • Sub-Saharan Africa

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