Domestic, Foreign Direct Investment and Economic Growth Nexus in Selected African Countries

Matthew Gidigbi () and Manu Donga ()
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Manu Donga: Modibbo Adama University

Acta Universitatis Danubius. OEconomica, 2021, issue 17(5), 142-156

Abstract: We assessed the impact of investment on economic growth in Africa because extant studies generated mixed results, with the view that a negative relationship between investment and economic growth is peculiar to developing countries. We used data from the World Bank’s WDIs and selected thirty African countries based on data availability and covering the period of thirty-four years starting from 1980. Pooled Panel Estimated Generalised Least Squares (EGLS) with the Cross-Section Seemingly Unrelated Regression (SUR) weight estimation was estimated. We found that domestic investment contributes 19.36 per cent to economic outputs, while foreign direct investment (FDI) and current account balances contribute 13.21 and 3.61 per cent respectively to economic outputs. We concluded that the investment in general and domestic investment, in particular, is very relevant to the economic growth in the continent, though the impact of the latter is greater by the former by approximately 6 percentage points, which is still very small. We recommend investment promotion strategies to enhance more local participation in investment processes and opportunities. Also, the principle of political stability and peaceful transition should be encouraged; and structural constraints should be effectively managed to enhance absorptive capacity and more foreign direct investment in the continent.

Keywords: FDI; Economic growth; Current Account; Panel data; Regional economics (search for similar items in EconPapers)
Date: 2021
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