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The Impact of Foreign Direct Investment (FDI) on Economic Growth in Eastern Africa: Evidence from Panel Data Analysis

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  • Seiko Minota Zekarias

Abstract

This study has analyzed the impact of Foreign Direct Investment (FDI) on Economic growth in 14 Eastern Africa countries by employing 34 years (1980-2013) panel data, using dynamic GMM estimators after checking for autocorrelation and model specification tests. Developing countries have been attracting FDI attempting to reduce resource gaps, technology gap, unemployment and trade deficits. However, unlike classical growth theories, the empirical studies sought inconclusive effect of FDI on growth. The findings confirm that FDI has positive and marginally significant effect of FDI on economic growth, the rate of economic conditional convergence at 5%, absence of significant crowding out effect moving from FDI to domestic investment, interdependence of domestic investment and trade openness in the sub-region. Thus, I conclude that FDI is a key deriver of economic growth and a catalyst to economic conditional convergence in Eastern Africa; so, the subregion need to attract more FDI by improving investment environment, strengthening regional integration, developing human capital and basic infrastructure, and promoting export-oriented investment.

Suggested Citation

  • Seiko Minota Zekarias, 2016. "The Impact of Foreign Direct Investment (FDI) on Economic Growth in Eastern Africa: Evidence from Panel Data Analysis," Applied Economics and Finance, Redfame publishing, vol. 3(1), pages 145-160, February.
    • Handle: RePEc:rfa:aefjnl:v:3:y:2016:i:1:p:145-160
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    Citations

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    Cited by:

    1. GUISAN, Maria-Carmen & EXPOSITO, Pilar, 2021. "Industry, Education, Development And Quality Of Life In African Countries, 1995-2020," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 21(2), pages 53-76.
    2. Ogbeifun Lawrence & Shobande Olatunji Abdul, 2020. "Causality Analysis of Disaggregated FDI Inflows on Sectorial Growth in OECD Area," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 30(4), pages 92-110, December.
    3. Imen Mohamed Sghaier, 2022. "Foreign Capital Inflows and Economic Growth in North African Countries: the Role of Human Capital," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(4), pages 2804-2821, December.
    4. Imen Mohamed Sghaier, 2021. "Foreign Financial Flows, Human Capital and Economic Growth in North African Countries," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 3, pages 355-371, September.
    5. Hisham Mohamed Hassan & Sonal Devesh & Omer Ali Ibrahim, 2022. "The Importance of Trade Openness and Inflation for Attracting Foreign Direct Investment in GCC Countries," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 17-40.
    6. Plaxedes Gochero & Seetanah Boopen, 2020. "The effect of mining foreign direct investment inflow on the economic growth of Zimbabwe," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-17, December.
    7. Hayelom Abrha Meressa, 2022. "Determinants of foreign direct investment inflows to COMESA member countries: an integration of institutional and socio-economic factors," Journal of Innovation and Entrepreneurship, Springer, vol. 11(1), pages 1-16, December.
    8. Moheddine Younsi & Marwa Bechtini & Hasna Khemili, 2021. "The effects of foreign aid, foreign direct investment and domestic investment on economic growth in African countries: Nonlinearities and complementarities," African Development Review, African Development Bank, vol. 33(1), pages 55-66, March.
    9. Philip Agyei Peprah & Yao Hongxing & Alex Boadi Dankyi, 2019. "Foreign Direct Investment Flow to Africa: Does Natural Resources Matter£¿," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(9), pages 1-67, September.
    10. Hafiz Muhammad Abubakar Siddique & Romana Ansar & Muhammad Mustasim Naeem & Sajid Yaqoob, 2017. "Impact of FDI on Economic Growth: Evidence from Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 6(3), pages 111-116, September.
    11. Eunice Adu-Darko & Emmanuel K Aidoo, 2022. "Government Stability in the Remittance-Economic Growth Link in Ghana," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 14(1), pages 1-14.
    12. Hassan Ajmal, 2020. "Exploring The Linkages Between Investment And Economic Growth: Empirical Evidence From Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 9(2), pages 85-91, June.
    13. Chibalamula, Haggai Chibale & Evans, Yeboah & Kachelo, Mukuka & Bamwesigye, Dastan, 2023. "The Effect of Foreign Direct Investment and Trade Openness on Economic Growth: Evidence from Five African Countries," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 15(1), January.
    14. Sini, Snow & Abdul-Rahim, A.S. & Chin, Lee & Said, Rusmawati & Sulaiman, Chindo, 2022. "Natural resources’ impact on capital flow and conflict relationship in Africa: A novel insight from GMM and quantile regression," Resources Policy, Elsevier, vol. 78(C).

    More about this item

    Keywords

    Foreign Direct Investment (FDI); Economic Growth; Eastern Africa; Generalized Method of Moments (GMM);
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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