Foreign direct investment and firm productivity: evidence from firm-level data

Abstract

This study examines the effect of foreign direct investment (FDI) on productivity of firms in Ghana. The paper also investigates the effect of FDI spillovers on domestic firms in Ghana. The results indicate that firms with high proportion of foreign capital are more productive than those with low or no foreign capital. This could be attributed to the fact that firms with more foreign capital injection are in a better position to employ advanced forms of technology, employ managers with better international exposure and skills in modern management techniques, adopt good corporate governance and management practices, and may have better access to credit from the international financial markets. We find no significant effect of spillovers from FDI on the productivity of domestic firms. Spillovers from FDI may not be high enough to warrant any significant effect on the productivity of domestic firms. It is also likely that the absorptive capacity of domestic firms in Ghana is not strong enough to generate positive spillovers from FDI. The findings of this study have relevant implications for economic policy.