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Investigating the role of disaggregated economic freedom measures and FDI on human development in Africa

Kofi Korle, Anthony Amoah, George Hughes, Paragon Pomeyie and Godson Ahiabor

Journal of Economic and Administrative Sciences, 2020, vol. 36, issue 4, 303-321

Abstract: Purpose - The purpose of the study is to investigate the role of disaggregated economic freedom measures in the foreign direct investment (FDI) and human development nexus. Design/methodology/approach - The study uses a panel data of 32 selected African countries from 1996 to 2017. A dynamic ordinary least squares (DOLS) with fixed effects and instrumental variable (IV) econometric techniques was used to address issues of endogeneity and serial correlation commonly associated with panel time series data. Findings - The Results indicate that FDI without accounting for absorptive factors has a positive but insignificant effect on human development for the selected African countries. However, FDI has a positive and significant effect on human development when interacted with measures of economic freedom such as investment freedom, business freedom and financial freedom. In contrast, yet plausible, FDI has a negative influence when interacted with property rights, trade freedom, government integrity and tax burden. Practical implications - The study posits that to attract FDI into Africa with the purpose of improving human development, relevant absorptive capacities such as business, investment and financial freedom environment are critical. However, excessive capital flight and government interference through taxation and abuse of property rights should be controlled if the continent seeks to promote human development through FDI. Originality/value - The novelty and originality of the study, are evident in the use of disaggregated measures of economic freedom as comprehensive absorptive capacities to examine how they complement FDI to impact on human development in Africa.

Keywords: Economic freedom; FDI; Human development; Absorptive capacity; Dynamic panel (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1108/JEAS-02-2019-0017

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