Browsing by Author "Yemane, Michael"

Now showing 1 - 1 of 1
  • No Thumbnail Available
    Item
    The Impact of Foreign Capital Inflows (FCIs) on Economic Growth in Sub-Saharan Africa (SSA)
    (Addis Ababa University, 2019-06) Yemane, Michael; Almas, Heshmati (Prof)
    This chapter analyzes FDI’s impact on economic growth in SSA countries for which relevant macroeconomic data is available for the period 2001-15. To achieve this, it develops a dynamic system GMM model to capture FDI’s impact on economic growth. It chooses the dynamic panel system GMM because of its superiority over other models in that it takes care of endogeneity problems and alleviates possible biases in the estimation. Besides, it also provides a solution to the problem associated with time-invariant individual heterogeneity, among others. The study includes 43 SSA countries for which data is available. The countries are categorized into ‘resource-rich’ and ‘resource-poor’ using data on their natural resource endowments and other important factors. The study found that there was no meaningful difference in the growth of per capita GDP and in these countries’ ability to attract FDI inflows based on their resource endowments. These findings indicate that FDI had a negative and statistically significant effect on the per capita GDP growth rate in SSA countries in the study period. However, the own lagged value of the growth rate of per capita GDP and gross capital formation, which is used as a proxy for domestic investments and exports, had positive and statistically significant effects on the growth rate of per capita incomes. Though FDI is touted as a catalyst for growth, the empirical findings of this study do not support this claim in SSA. The study provides an explanation for the possible reasons for this divergence from the expected positive effects. It is clear that FDI is not a panacea for the economic malaise in the region and is not contributing to the betterment of lives and welfare. Hence, it is time for SSA governments and policymakers to find out where the problem lies and align policies in a way that make FDI have a more meaningful positive contribution in dragging millions of people out of poverty.