THE IMPACT OF FOREIGN DIRECT INVESTMENT (FDI) ON THE ECONOMIC GROWTH IN SUB-SAHARAN AFRICA

Abstract

The bulk of FDI to the African continent originates from the European Union, United States and Asia. In most cases, FDI inflows have resulted in the transfer of new technologies, specialized knowledge, and skills to the locals. Investment significantly contributes to employment and economic growth in many African countries. Progressively, FDI began rising in the beginning of the 1990s economic literature looking at FDI and how it affects growth has increased and because of this, FDI can act as an exogenous element boosting GDP under neoclassical growth models (labor, capital, and technology) by increasing investment volumes or its efficacy. We fail to reject the null hypothesis indicating that there is a non-significant positive correlation between FDI inflows and economic growth in Sub-Saharan Africa, as measured by changes in Gross Domestic Product per Capita. The coefficient of FDI being negative -0.003 with a p-value of 0.608, indicating that it is not statistically significant. Economic growth and thorough examination of foreign direct investment in Sub-Saharan African region is crucial in ensuring that key components are analyzed for a suitable model to be developed in order to observe on how government policies ensures that FDI inflows impacts economic growth in the region. The data for the analysis contains information from unbalanced panel data between the year 1998 to 2022 for 48 countries representing the sub-Saharan Africa region.