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The impact of foreign direct investment on the growth of the manufacturing sector: exploring the role of institutional quality in Ghana

Author

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  • Opoku Adabor

    (RMIT University Melbourne)

  • Eric Fosu Oteng-Abayie

    (Kwame Nkrumah University of Science and Technology)

  • Emmanuel Buabeng

    (Kwame Nkrumah University of Science and Technology)

Abstract

This paper uses time series data covering the period from 1980 to 2019 to study the role of institutional quality in influencing the impact of foreign direct investment (FDI) on manufacturing sector growth and explore the impact of FDI on manufacturing sector growth in Ghana. We used the bound test approach to cointegration within the autoregressive lags model (ARDL) framework as an estimation strategy. The results of the ARDL indicate that FDI influences manufacturing sector growth negatively. At the same time, the interaction of FDI with institutional quality exerts a positive and significant effect on manufacturing sector growth. These results show that the quality of institutions is needed to complement the inflow of FDI to boost the growth of the manufacturing sector. Hence, policy interventions aimed at improving the manufacturing sector should target improving the quality of institutions through minimizing corruption among state and private institutions.

Suggested Citation

  • Opoku Adabor & Eric Fosu Oteng-Abayie & Emmanuel Buabeng, 2023. "The impact of foreign direct investment on the growth of the manufacturing sector: exploring the role of institutional quality in Ghana," SN Business & Economics, Springer, vol. 3(1), pages 1-25, January.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:1:d:10.1007_s43546-022-00369-1
    DOI: 10.1007/s43546-022-00369-1
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