Foreign Direct Investment, Sectoral Growth and Economic Growth in Sub Saharan Africa

Abstract

There is a widespread belief in transition and growing economies that the relationship between FDI and Growth is symmetrical. On the other hand, the problem of the nonlinear impact of FDI on Growth has remained insufficiently explored. Moreover, previous studies did not account for the transmission process through which FDI transact to economic growth of sub-Saharan economies. Using panel data from 30 sub-Saharan African countries spanning from 1990-2019, this study re-examines the influence of FDI on economic growth. The findings revealed that the influence of FDI on economic growth was negative and significant in the short run when the transmission channel in the industry sector was taken into consideration. However, in the long run the results was significant for all when the conditional sectoral effect was taken into consideration. The growth enhancing effect of FDI was largely seen to be insignificant when the asymmetric effect was taken into consideration. A higher and a lower inflow of FDI was seen to be only significant on economic growth from the transmission in the agricultural and the service sector. This study discusses that much emphasis should be placed on developing the various sectors through which FDI transact into economic growth.