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Foreign Direct Investment and Economic Growth in Africa: New Empirical Approach on the Role of Institutional Development

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  • Kouassi Yeboua

Abstract

According to the predominant conclusion from the recent FDI-growth literature, the conflicting evidence concerning the effect of foreign direct investment on economic growth in host countries might be due to the fact that the gains from FDI are conditional on certain domestic factors. Among these factors is the quality of institutions. The aim of this study is therefore to investigate the role of institutional development in FDI-growth nexus in African countries. Using a panel smooth transition regression model with a sample made up of 27 African countries over the period 1990–2017, the results show that FDI promotes economic growth in countries where the level of institutional development is beyond a certain threshold. In countries that fall below the threshold, FDI has either a negative or null effect on economic growth. Specifically, we find that countries should be above the 65% threshold regarding government stability score, 55% for investment profile, 50% for democratic accountability, 45% for law and order, 35% for corruption, and above the 25% threshold for bureaucracy quality score to benefit from FDI in terms of economic growth.

Suggested Citation

  • Kouassi Yeboua, 2021. "Foreign Direct Investment and Economic Growth in Africa: New Empirical Approach on the Role of Institutional Development," Journal of African Business, Taylor & Francis Journals, vol. 22(3), pages 361-378, July.
    • Handle: RePEc:taf:wjabxx:v:22:y:2021:i:3:p:361-378
    DOI: 10.1080/15228916.2020.1770040
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    Cited by:

    1. Farrukh Nawaz Kayani & Ismat Nasim & Khalil Abu Saleem, 2024. "Analyzing the Impact of Governance, Environment and Trade on Inward FDI: A Case of Cambodia, Thailand and Vietnam from ASEAN," International Journal of Energy Economics and Policy, Econjournals, vol. 14(2), pages 523-534, March.
    2. Arogundade, Sodiq, 2021. "Be Nice to thy Neighbours: Spatial impact of Foreign Direct Investment on Poverty in Africa," MPRA Paper 111789, University Library of Munich, Germany.
    3. Abderrazek Ben Hamouda, 2023. "On the Link Between FDI, Political Risk and Economic Growth in Sub-Saharan Africa: A Panel VAR Approach," Journal of Economic Impact, Science Impact Publishers, vol. 5(2), pages 171-180.
    4. Sami Ullah & Kishwar Ali & Muhammad Ehsan, 2022. "Foreign direct investment and economic growth nexus in the presence of domestic institutions: a regional comparative analysis," Asia-Pacific Journal of Regional Science, Springer, vol. 6(2), pages 735-758, June.
    5. Grace Nkansa Asante & Kofi Kamasa & Myles Patrick Bartlett, 2022. "Foreign direct investment and economic growth nexus in ECOWAS: The leveraging effect of anti-corruption," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 14(2), pages 162-174.
    6. Grace Nkansa Asante & Kofi Kamasa & Myles Patrick Bartlett, 2022. "Foreign direct investment and economic growth nexus in ECOWAS: The leveraging effect of anti-corruption," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 14(2), pages 176-188.
    7. Liu, Qiang & Sun, Hongyu & Luo, Haiming, 2022. "Resource-richness, technological innovation, and sustainable development: Evidence from emerging economies," Resources Policy, Elsevier, vol. 79(C).
    8. 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.
    9. Hlongwane, Nyiko Worship & Mmutle, Tumelo Donald & Daw, Olebogeng David, 2021. "The relationship between foreign direct investment and economic growth in SADC region from 2000 to 2019: An econometric view," MPRA Paper 111008, University Library of Munich, Germany.
    10. Sue Abdinnour & Sesan Oluseyi Adeniji, 2023. "Empirical analysis of the impact of entrepreneurial activity on economic growth of Global Entrepreneurship Monitor (GEM) countries," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 13(1), pages 1-11, December.
    11. Mohd Nadeem Bhat & Firdos Ikram & Mohd Nayyer Rahman, 2024. "Foreign Direct Investment and Imports in India: Exploring Institutional Dimensions," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(1), pages 1386-1417, March.
    12. Patrick OLOGBENLA, 2022. "An Investigation into the Nexus between Fiscal Policy, Foreign Direct Investment and Economic Growth in Nigeria," Journal of Social and Development Sciences, AMH International, vol. 12(4), pages 1-8.

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