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