Foreign direct investment and economic growth in Sub-Saharan Africa: the complementary role of economic freedom and financial market fragility

Abstract

In line with the neoclassical growth theory, this study examines the complementary role of economic freedom and financial fragility in the foreign direct investment (FDI) – growth nexus for 36 Sub-Saharan (SSA) Africa countries spanning the period 1998 to 2016. The study hypothesises that for FDI to translate into growth, financial market development that account for fragility and economic freedom should be present in the host country. The uniqueness of this study lies in the use of financial market data that accounts for financial market fragility and aggregate score of economic freedom. Using fully modified ordinary least squares technique, the study reveals that economic freedom and a well-developed financial market complement FDI in promoting economic growth in SSA. This study highlights the need to strengthen the financial system and promote economic freedom to enhance FDI’s effect on economic growth.

Keywords:

• FDI
• economic growth
• financial market fragility
• economic freedom
• SSA

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 This is FDI inflows as a percentage of GDP.

Additional information

Notes on contributors

Edmund Kwablah

Edmund Kwablah is a lecturer at Central University, Accra. Department of Economics.. Email: [email protected]

Anthony Amoah

Anthony Amoah, PhD, is an Associate Professor at School of Sustainable Development, University of Environment and Sustainable Development, Somanya. & an Executive Director of the Africa Centre for Applied Economics and Policy Research (ACAEP), Accra. Email: [email protected]