The effect of Foreign Direct Investment (FDI) on infrastructure development in Ghana
Abstract
In spite of the glut of studies on the direction of causality between Foreign Direct Investment (FDI) and Infrastructure development, empirical evidence is not clear for country groups. This study therefore sought to explore the correlation between FDI, infrastructure development and Growth in Ghana using time series data from 1990 and 2015. The specific objectives included to; examine the pattern of FDI inflows in Ghana over the past two decades; examine the antecedents of FDI inflows into Ghana; examine the causal relationship between FDI and GDP Growth; explore the relationship between FDI and infrastructure development in Ghana. The data sets were obtained from the World Bank - African Development Indicators Database, the Ministry of Finance and Economic Planning - Fiscal Data. Other sections were complemented with data from ISSER and CEPA publications. Standard time-series unit root test was conducted using Generalized Least Squares Detrending (DF-GLS) to check the stationarity of variables. Three main models were considered Model 1 - Antecedents to FDI; Model 2 – Growth Model; Model 3 – Infrastructure Model. With respect to the pattern of FDI inflows into the country, the study found a general increase in the inflows of foreign investment over the sample period; however it is shown that between 1994 to 2002 sharp falls in the FDI inflows were present. It however assumed its steady rise onwards to 2014. For the growth model, the study found that average growth rate for the 25-year period was 0.99% far less than the annual change in GDP growth of 1.66% for the data span. The long run Fully Modified Least Square (FMOLS) estimation showed that openness, GDP growth rate, exchange rate fluctuations, political risks and previous level of FDI inflows have a strong impact on current FDI inflows at 5% significant level. In the Two (2) estimation approaches used to capture the effects of FDI on growth, FDI was shown not to draw any significant impact on growth in both models. The strength of both models is validated by the adjusted R-squares of 70.5% in the first model and 71.9% in the second model. To achieve growth in infrastructure, it is recommended that Government works at ensuring FDI is attracted to sectors of the economy that directly trickles into growth. It is also important that the country’s trade policies are geared towards opening the country’s market for more trade. However, a careful analysis should be done to identify sectors that warrant openness so as not to suffocate nascent industries.
Description
A thesis submitted to the Department Of Building Technology, College of Art and Built Environment in partial fulfilment of the requirements for a degree of Master of Philosophy,
Keywords
Infrastructure, Regression, Ghana, Foreign Direct Investment, Growth