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Foreign Direct Investment in an Emerging Economy: Exploring the Determinants and Causal Linkages

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  • Diana N-Peline Kombui
  • Richard Angelous Kotey

Abstract

The objective of the study was to examine the determinants of Foreign Direct Investment (FDI) from 1985 to 2015 in an emerging economy, Ghana. The study used a robust OLS regression and a Granger Causality Test to test for causal effects on a longitudinal data of thirty years. The study found, using a robust OLS regression model that, Natural Resource Endowment, Government expenditure, External debt and Infrastructure has significant predictive effects on FDI although the effect were more profound for natural resources and government expenditure. Using a granger causality approach, interest rate, natural Resource Endowment, Government expenditure, inflation, Infrastructure and international reserves were observed to granger cause FDI. The study recommends that policyholders and the government should also put in place measures that would maintain natural resources and spend on improving infrastructure and development as these attract foreign investments into the country.

Suggested Citation

  • Diana N-Peline Kombui & Richard Angelous Kotey, 2019. "Foreign Direct Investment in an Emerging Economy: Exploring the Determinants and Causal Linkages," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(1), pages 51-62, March.
    • Handle: RePEc:khe:scajes:v:5:y:2019:i:1:p:51-62
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    Cited by:

    1. Ofosu, Albert & Kotey, Richard Angelous, 2020. "Does Sports Betting Affect Investment Behaviour? Evidence from Ghanaian Sports Betting Participants," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 43, pages 61-83.
    2. K. S. Sujit & B. Rajesh Kumar & Sarbjit Singh Oberoi, 2020. "Impact of Macroeconomic, Governance and Risk Factors on FDI Intensity—An Empirical Analysis," JRFM, MDPI, vol. 13(12), pages 1-14, December.

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    More about this item

    Keywords

    FDI; Granger causality; Co-integration; Error correction model;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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