Foreign Direct Investment Inflows and Economic Growth in Ghana

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International Business and FDI Monetary Policy and Economic Impact Economic Growth and Productivity

Abstract

There exists mixed empirical evidence on the size of gains from Foreign Direct Investment (FDI) inflows for the economies of different countries. The paper thus investigated the relationship between economic growth and FDI inflows a dynamic framework. A study of this sort would inform policy on the role of lagged, coincident and leading effects of FDI on economic growth. An Engle-Granger two-step methodology for error correction was employed. The major empirical and methodological contribution of this study is the use of Dynamic Ordinary Least Squares (DOLS) technique. Dynamic OLS becomes better than OLS by coping with small sample sources of bias. The elasticity of economic growth with respect to FDI had a positive sign and also significant at the 1% level. However, the effect of a three (3) year lag of FDI on economic growth had a negative sign and significant at the 5% level. Policy makers should thus not concentrate on current macroeconomic inflows of FDI but consider effects of past FDI inflows on current levels of economic growth.

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References

1993A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems 2003FDI and economic growth: the role of local financial markets 1995How Does Foreign Direct Investment Affect Economic Growth?1993Idea gaps and object gaps in economic development 1985Economic and political determinants of foreign direct investment 2002Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth 1991Economic Growth in Latin America 1992What Explains Developing Country Growth?

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2018The impact of foreign capital inflows on economic growth on selected African countries 2015The Impact of Foreign Direct Investment (FDI) on the performance of the Agricultural Sector in Ghana 2014The Effect of Macroeconomic Variables on Stock Market Returns in Ghana (2000-2013)2014Does Foreign Direct Investment really affect Ghana’s Economic Growth?

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