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Foreign Direct Investment, Democracy and Economic Growth in Southern Africa

Foreign Direct Investment, Democracy and Economic Growth in Southern Africa African Development Review, Vol. 29, No. 1, 2017, 92–102 Foreign Direct Investment, Democracy and Economic Growth in Southern Africa Christopher Malikane and Prosper Chitambara Abstract: This paper investigates the link between foreign direct investment (FDI), democracy and economic growth on a panel of eight Southern African countries for 1980–2014 using the system generalized method-of-moment (GMM) estimator. We find that FDI has a direct positive effect on economic growth and that strong democratic institutions are a significant driver of economic growth in the sample countries. The impact of FDI on economic growth is dependent on the level of democracy in the host countries. This implies that countries with strong democratic institutions are better able to absorb the positive spillovers from FDI. In policy terms, Southern African countries should sustain the institutional reform policy agenda already in place in order to benefit more from the significant inflows of FDI. 1. Introduction The impact of foreign direct investment (FDI) on economic growth has generated ambiguous results (Gorg and Greenaway, 2004). One view is that FDI enhances economic growth by increasing the capital stock and improving its efficiency (Li and Liu, 2005) while it also produces positive technological spillovers from the developed countries http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png African Development Review Wiley

Foreign Direct Investment, Democracy and Economic Growth in Southern Africa

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References (34)

Publisher
Wiley
Copyright
© 2017 African Development Bank
ISSN
1017-6772
eISSN
1467-8268
DOI
10.1111/1467-8268.12242
Publisher site
See Article on Publisher Site

Abstract

African Development Review, Vol. 29, No. 1, 2017, 92–102 Foreign Direct Investment, Democracy and Economic Growth in Southern Africa Christopher Malikane and Prosper Chitambara Abstract: This paper investigates the link between foreign direct investment (FDI), democracy and economic growth on a panel of eight Southern African countries for 1980–2014 using the system generalized method-of-moment (GMM) estimator. We find that FDI has a direct positive effect on economic growth and that strong democratic institutions are a significant driver of economic growth in the sample countries. The impact of FDI on economic growth is dependent on the level of democracy in the host countries. This implies that countries with strong democratic institutions are better able to absorb the positive spillovers from FDI. In policy terms, Southern African countries should sustain the institutional reform policy agenda already in place in order to benefit more from the significant inflows of FDI. 1. Introduction The impact of foreign direct investment (FDI) on economic growth has generated ambiguous results (Gorg and Greenaway, 2004). One view is that FDI enhances economic growth by increasing the capital stock and improving its efficiency (Li and Liu, 2005) while it also produces positive technological spillovers from the developed countries

Journal

African Development Review – Wiley

Published: Mar 1, 2017

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