Can foreign direct investment (FDI) help to promote growth in Africa

Abstract

In the last 2 decades, foreign direct investment (FDI) flows have grown rapidly all over the world. This is because many countries and especially developing countries see FDI as an important element in their strategy for economic development. This paper provides a review of the foreign direct investment economic growth literature in the context of developing countries, and particularly Sub-Saharan Africa. The two main findings are as follows, first, FDI contributes to economic development of host country in two main ways, augmentation of domestic capital and enhancement of efficiency through the transfer of new technology, marketing and managerial skills, innovation and best practices, secondly FDI has both benefits and costs and its impact is determined by the country specific conditions in general and the policy environment in particular in terms of the ability to diversify, the level of absorption capacity, targeting of FDI, and opportunities for linkages between FDI and domestic investment. The findings of the review suggest that FDI is necessary but not a sufficient condition for economic growth.

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