Abstract
Purpose The factors that determine foreign direct investment (FDI) are important to policy-makers, investors, the banking industry and the public at large. FDI in Ghana has received increased attention in recent times because its relevance in the Ghanaian economy is too critical to gloss over. The purpose of this paper is to examine the determinants of FDI in Ghana between the period of 1990 and 2015. Design/methodology/approach The study employed a causal research design. The study used the Johansen’s approach to cointegration within the framework of vector autoregressive for the data analysis. Findings The study found a cointegrating relationship between FDI and its determinants. The study found that both the long-run and short-run results found statistically significant negative effects of inflation rate, exchange rate and interest rate on FDI in Ghana while gross domestic product, electricity production and telephone usage (TU) had a positive effect on FDI. Research limitations/implications The study found a cointegrating relationship between FDI and its determinants. The study found that both the long-run and short-run results found statistically significant negative effects of inflation rate, exchange rate and interest rate on FDI in Ghana whiles gross domestic product, electricity production and TU had a positive effect on FDI. Practical implications This study has potential implication for boosting the economies of developing countries through its policy recommendations which if implemented can guarantee more capital inflows for the economies. Social implications This study has given more effective ways of attracting more FDI into countries which in effect achieve higher GDP and also higher standard of living through mechanisms and in the end creating more social protection programs for the people. Originality/value Although studies have been conducted to explore the determinants of FDI, some of the core macroeconomic variables such as inflation, interest rate, telephone subscriptions, electricity production, etc., which are unstable and have longstanding effects on FDI have not been much explored to a give a clear picture of the relationships. Therefore, a study that will explore these and other macroeconomic variables to give clear picture of their relationships and suggest some of the possible ways of dealing with these variables in order to attract more FDI for the country to achieve its goal is what this paper seeks to do.
Highlights
Foreign direct investment (FDI) is a vital ingredient in achieving sustained growth of any nation, including Ghana
Studies have been conducted to explore the determinants of FDI, some of the core macroeconomic variables such as inflation, interest rate, telephone subscriptions, electricity production, etc., which are unstable and have longstanding effects on FDI have not been much explored to a give a clear picture of the relationships
4.2 Results of the unit roots test In order to examine the determinants of FDI in Ghana, the stationarity status of all the variables including the control variables in the openness model specified for the study were determined
Summary
Foreign direct investment (FDI) is a vital ingredient in achieving sustained growth of any nation, including Ghana. The participation of developing countries in the total inflows of FDI has varied considerably over the last 25 years; increasing from 15 percent in 1980 to 46 percent in 1982, leveling off at slightly over 20 percent during the last four years. It must be pointed out, that the motives behind these international capital flows are still substantially different than those related to the inflows of FDI to developing countries, in spite of the changes that have taken place over the last decades. The current movement of these flows is extremely complex, and is subject to a wide variety of factors related to the competitive environment in which the firms operate, to their specific characteristics and to economic factors in the home and host countries
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