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Foreign Direct Investment and Inclusive Human Development in Sub-Saharan African Countries:Does local Economic Conditions Matter?

Sodiq Arogundade, Mduduzi Biyase and Joel Eita ()
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Sodiq Arogundade: College of Business and Economics, University of Johannesburg

Economic Development and Well-being Research Group Working Paper Series from University of Johannesburg, College of Business and Economics

Abstract: The controversies that trails whether FDI’s impact is conditional on certain intermediating variables or not, has become a recurring discourse in the FDI-welfare literature. While the quality of institution has prominently featured as playing a vital role on the one hand, infrastructure level and economic growth have also been highlighted as good candidates on the other hand. This study examines the necessary local economic conditions required for the existence of positive spillovers from multinationals’ investment in improving inclusive human development. In achieving this, a panel 28 SSA countries from 1996-2018 was explored using panel smooth transition regression model (PSTR). The results support the view that institutional quality and infrastructure are germane in enhancing the impact of FDI on welfare distribution. The study further suggest that higher economic growth is a necessary but not sufficient condition in facilitating the impact of FDI, as economic growth must be combined with either infrastructure or quality institution before generating the anticipated impact. This implies that the more host nations improve the conditions of their economies, the more they reap the benefit of FDI in terms of job creation, technological spillovers, and distribution of welfare. Conclusion emanating from this study is that beyond putting in place FDI’s promotional policies to improve the appetite of multinational corporations, SSA countries need to further privatize and liberalize critical sectors in their economies in order to provide needed liquidity for investment in infrastructure, growing the economy as well as public sector reform.

Keywords: Inclusive Human Development; Foreign Direct Investment; Local Economic conditions; Panel Smoothening Transition Regression Model and Sub-Saharan African Countries (search for similar items in EconPapers)
JEL-codes: F23 H54 I30 O43 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2021, Revised 2021
New Economics Papers: this item is included in nep-fdg and nep-int
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