Foreign direct investment and economic growth in developing countries: Panel estimation for Sub-Saharan African countries

Abstract

It has been widely claimed that foreign direct investment (FDI) stimulates economic growth. In this study, an attempt is made to verify this for ten selected Sub-Saharan African (SSA) countries using data spanning from 2008 to 2013 obtained from world development indicators. Preliminary analysis conducted indicates that the regression assumption tests as the ARCH test for heteroscedasticity, the Lagrangian multiplier test for higher autocorrelation and the Ramsey Reset test for mis-specification of models show that ordinary least square (OLS) estimation is appropriate. The result of panel multiple regression analysis using the pooled OLS, fixed and random effects is reported. The Hausman‘s test shows that the fixed effect model is more reliable. The findings reveal that though FDI positively stimulate growth in SSA but it is not a significant determinant of growth performance in SSA. The study recommends that SSA countries should endeavour to increase their share of world‘s FDI through the use of appropriate and responsive policies. Keywords: FDI, Growth, and Panel Least Square