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Introduction to Determinants of Economic Growth in Africa and Summary of the Contributions Read chapter Read first chapter

2018 | OriginalPaper | Chapter

2. The FDI and Economic Growth Controversy in Sub-Saharan Africa

Author : Yemane Michael

Published in: Determinants of Economic Growth in Africa

Publisher: Springer International Publishing

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Abstract

This paper analyzes the impact of foreign direct investment (FDI) on economic growth in sub-Saharan African (SSA) countries for which relevant macroeconomic data is available for the period 2001–2015. To attain this objective it develops a dynamic panel system Generalized Method of Moments (GMM) model to capture the impact of FDI on economic growth. The choice of GMM is not haphazard or without purpose. It is superior to other models in that it takes care of endogeneity problems and alleviates possible biases in estimation. Forty-three SSA countries for which data is available were included in the study. The countries were categorized into ‘resource-rich’ and ‘resource-poor’ on the basis of the IMF (2013) classification using data about natural resource endowments and other factors. Our study found that there is no meaningful difference in the growth of per capita GDP and in the countries’ abilities to attract FDI inflows. Our findings indicate that FDI had a negative and statistically significant effect on the growth rate of per capita GDP in SSA for the period under consideration. However, the own lagged value of the growth rate of per capita GDP, gross capital formation (which is used as a proxy for domestic investment) and exports had a positive and statistically significant effect on the growth rate of per capita income.

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previous chapter Introduction to Determinants of Economic Growth in Africa and Summary of the Contributions
next chapter Determinants of Foreign Direct Investment Inflows to Africa
Footnotes
1
In this study, broad money and M2 are used interchangeably.
 
2
In this study, the terms official development assistance, foreign aid and aid are used interchangeably
 
3
The SSA countries included in the study are Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Congo (Brazzaville), Congo (Democratic Republic), Côte d’Ivoire, Equatorial Guinea, Ethiopia, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Liberia, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Seychelles, Sierra Leone, South Africa, Sudan, Swaziland, Tanzania, Togo, Uganda, Zambia and Zimbabwe.
 
4
Compare the results in Table 4 under Models 1 and 2 as well as Models 3 and 4 to appreciate the impact that the uncorrected standard errors have on the significance of the coefficients.
 
5
xtabond2 is a user-written Stata add-on command developed by Roodman (2009a, b) which helps to find difference GMM and system GMM of a linear dynamic panel data model. It is more flexible and has more functions not present in the xtabond, xtdpdsys and xtdpd commands available in the Stata package.
 
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Metadata
Title
The FDI and Economic Growth Controversy in Sub-Saharan Africa
Author
Yemane Michael
Copyright Year
2018
Book
Determinants of Economic Growth in Africa

Print ISBN: 978-3-319-76492-4

Electronic ISBN: 978-3-319-76493-1

Copyright Year: 2018

DOI
https://doi.org/10.1007/978-3-319-76493-1_2

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