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

May 14th, 2015
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Abstract Many studies have attempted to estimate the impact of foreign direct investment (FDI) on growth around the world, but very few have focused on Sub-Saharan Africa. Accordingly, this thesis explores the effect of FDI on economic growth in the region, using data from 43 countries over the period 1980-2009. I employ ordinary least squares regressions with country fixed effects to answer my primary research question, using real GDP growth as the dependent variable and gross FDI inflows as a percentage of GDP as the key explanatory variable. My regressions control for time-variant characteristics across the countries in my sample, such as terms of trade, trade openness, and government expenditure. All variables are averaged over non-overlapping three-year intervals to reduce business cycle effects, and FDI is lagged to address endogeneity. My results indicate that FDI is associated with higher growth in Sub-Saharan Africa, particularly after the exclusion of outliers.

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The effect of foreign direct investment ongrowth in Sub-Saharan AfricaMary-Ann JumaSubmitted to the Department of Economics of Amherst Collegein partial fulfillment of the requirements for the degree ofBachelor of Arts with HonorsFaculty Adviser: Professor Salim FurthMay 3, 2012AbstractMany studies have attempted to estimate the impact of foreign direct investment(FDI) on growth around the world, but very few have focused on Sub-Saharan Africa.Accordingly, this thesis explores the effect of FDI on economic growth in the region,using data from 43 countries over the period 1980-2009.I employ ordinary least squares regressions with country fixed effects to answermy primary research question, using real GDP growth as the dependent variable andgross FDI inflows as a percentage of GDP as the key explanatory variable. Myregressions control for time-variant characteristics across the countries in my sample,such as terms of trade, trade openness, and government expenditure. All variables areaveraged over non-overlapping three-year intervals to reduce business cycle effects, andFDI is lagged to address endogeneity.My results indicate that FDI is associated with higher growth in Sub-SaharanAfrica, particularly after the exclusion of outliers. I test for a difference in the effect ofFDI on growth in mineral-rich versus mineral-poor countries, and do not find that there isa statistically significant difference between the two sets of countries. For robustness,

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