The influence of Foreign Direct Investment (FDI) on the economic growth of Ghana (1992-2014)
Loading...
Date
2016-11-21
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
The impact of foreign direct investment (FDI) on the economic growth of host economies has
attracted significant debate in the literature with empirical evidence being inconclusive. Ghana
FDI inflow has shown mix trends over the year. This paper aims to study the relationship
between FDI and economic growth in Ghana for the period 1992-2014 using time series data.
The data used in this study was mainly secondary data collected from the period, 1992 to 2014
consisting of yearly observations for each variable. The real GDP growth and foreign direct
investment net inflows as percent of GDP (FDI ratio) data were taken from the World Banks
World Development Indicators 2014 The study employs the cointegration, Vector Error
correction Model (VECM) and the Granger causality testing to empirically examine the
relationships and directional relationships between the variables.
The study establishes that a long-run equilibrium and causal relationship exists between the
dependent variable; Real Gross Domestic Product and the independent variables under
consideration namely, Trade openness, Interest Rate, Inflation and Government Size. It was
determined that in the short-run, effects of FDI, Trade Openness, Inflation and Interest Rate
volatility on RGDP are significant while the Government Size volatile on RGDP is nearly
imaginary.
The significance of the FDI variable in the equation is an indication the FDI affects the
macroeconomic economy. As a consequence, FDI promotion policies should be adjustment to
bring more investment to the country which then translates into high economic growth in the
Ghanaian economy. Future research in this area should focus on the impact of FDI on the
various sectors of the economy in Ghana. This builds on the findings on this study and helps
inform policy makers in shaping FDI polices for the various sectors of the economy.
Description
A thesis submitted to The Department of Economics in partial fulfillment of the requirements for the award of Master of Science in Economics,