Foreign Direct Investment, Sectoral Effects and Economic Growth in Africa

ABSTRACT

Earlier studies on the impact of Foreign Direct Investment (FDI) on economic growth have not been instructive largely on their failure to examine the sectoral transmission channels through which FDI affects growth. We re-examine the impact of FDI on economic growth in Africa using the system generalized method of moments. The results reveal that, while FDI positively and unconditionally spurs economic growth, its growth-enhancing effect is imaginary when the conditional sectoral effects are introduced. On the channels of manifestation, we notice that the pass-through impact of FDI is only significant for the agricultural and service sectors.

KEYWORDS:

• FDI
• sectoral value additions
• economic growth
• generalized method of moments
• Africa

JEL:

• F02
• F04
• P04

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Eric Evans Osei Opoku http://orcid.org/0000-0002-4961-5984

Muazu Ibrahim http://orcid.org/0000-0002-1286-0564

Notes

1 These statistics have been computed with data from the UNCTADStats (2015), online. It is not shown in Table 1.

2 The countries are Benin, Botswana, Burundi, Burkina Faso, Cape Verde, Cameroon, Chad, Central African Republic, Congo, Rep., Cote d'Ivoire, Congo, Dem. Rep., Gabon, Ghana, Ethiopia, Gambia, Guinea-Bissau, Kenya, Lesotho, Liberia, Malawi, Mali, Mauritius, Mozambique, Namibia, Morocco, Nigeria, Niger, Rwanda, Senegal, Sierra Leone, South Africa, Swaziland, Sudan, Togo, Tunisia, Uganda, Zambia and Zimbabwe.

3 Kumi, Ibrahim, and Yeboah (2017) have also used these sectoral value additions to examine their linkage with aid, aid volatility and domestic financial development in SSA.

Additional information

Notes on contributors

Eric Evans Osei Opoku

Eric Evans Osei Opoku holds a PhD degree in Economics from the City University of Hong Kong. His primary areas of research include International Economics (International Trade and Finance), Economic Growth and Development.

Muazu Ibrahim

Muazu Ibrahim obtained his PhD in Finance from the University of the Witwatersrand, South Africa. He is an applied economist and teaches in the Department of Banking and Finance, School of Business and Law (SBL), University for Development Studies, Ghana. Muazu's research interest spans across Development Finance, Risk Modelling and Applied Econometrics.

Yakubu Awudu Sare

Yakubu Awudu Sare holds PhD in Finance from the University of Ghana Business School, Legon. He is a Senior Lecturer in the Department of Banking and Finance, School of Business and Law (SBL), University for Development Studies (UDS), Ghana. His research interests include Financial Markets and Institutions, Development Finance and International Trade.