The Impact of Foreign Direct Investment on Economic Growth in Africa.

May 14th, 2015
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Abstract This paper examines the relationship between FDI inflows and welfare improvement in North African countries. Using net per capita FDI inflows and the UNDP’s HDI as the principal variables, our analyses confirm the positive and strongly significant relationship between net FDI inflows and welfare improvement in North Africa, although we do find significant differences among the countries in the region. This relationship holds even after we control for government size, country indebtedness, macroeconomic instability, infrastructural development, institutional quality, political risk, openness to trade, education and financial market development. Hence, at the aggregate level, FDI contributes to economic growth in North Africa, in turn generating additional revenues for governments and populations in the region through fiscal policies and jobs creation. It is therefore essential for governments in the region to continue investing in social infrastructures while improving the qualit

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AfDB2015www.afdb.orgWo rk i n gPa p e rNorth Africa Policy SeriesCONTENTSDoes Foreign Direct InvestmentImprove Welfare in North AfricanCountries?Abstract p.1I- Introduction p.3II- Review of the Literatureon FDI and Welfare p.6AbstractIII- Does FDI ImproveWelfare in North Africa? p.9This paper examines the relationship betweengovernance; doing so will help avoid the typeFDI inflows and welfare improvement inof unrest we have witnessed recently.North African countries. Using net per capitaIV- Does FDI ImproveWelfare by more in SomeNorth African Countriesthan in Others? p.25V- Conclusion and PolicyRecommendations p.39References p.41Appendix A p.45FDI inflows and the UNDPs HDI as the principalWe also found that FDI received by countries invariables, our analyses confirm the positive andthe region are mainly concentrated in very fewstrongly significant relationship between netindustries (particularly extractive petroleum,FDI inflows and welfare improvement in Northservices and tourism, construction and utilities);Africa, although we do find significant differencesrelatively fewer of these investments are directedamong the countries in the region. This relationshiptoward the non-extractive primary industries,holds even after we control for government size,which are pro-poor sectors and highly laborcountry indebtedness, macroeconomic instability,intensive, or the manufacturing sector, with ainfrastructu

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