Foreign Direct Investment, Trade Openness and Economic Growth: Evidence from Ghana

Emmanuel Nketiah,Bekoe Bernard Boamah,Xiang Cai,Mavis Adjei

doi:10.4236/ojbm.2020.81003

Emmanuel Nketiah, Bekoe Bernard Boamah + Show 2 more

Open Access

https://doi.org/10.4236/ojbm.2020.81003

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Abstract

This article investigates the relationship among foreign direct investment, trade openness and economic growth in Ghana taking the period of post-liberalization covering 1975-2017. The Augmented Dickey-Fuller (ADF) test for unit root, regression analysis, descriptive analysis, and Pearson correlation was used to investigate the relationships. ADF test for unit root result shows all variables to be integrated of order one, that is they are stationary after the first difference. The study extracted and used secondary data sources derived from the World Development Indicators (WDI) of the World Bank and Bank of Ghana website over the period 1975-2017. The study proxied foreign direct investment, inflation, and trade openness were used as an independent indicator while GDP growth (annual %) was the dependent indicator. Using the Ordinary Least Squares (OLS) estimator, the study revealed that trade openness is the main factor affecting GDP growth (annual %) in Ghana. Also, the study finds that foreign direct investment and Inflation had (﹣, or +) impact but were not statistically significant on GDP growth (annual %). Therefore, the study concludes by recommending robust measures to enhance trade openness in terms of encouraging exports and inflow of FDI through the creation of an enabling and friendly environment to do business for output growth dynamics in Ghana.

Highlights

This article investigates the relationship among foreign direct investment, trade openness and economic growth in Ghana taking the period of post-liberalization covering 1975-2017
According to World Investment Report by the World Trade Organization and United Nations Conference on Trade and Development [2], the roles of foreign direct investment (FDI) and trade openness have expanded to include not just the effect on growth and on income distribution and environmental quality which are the three main pillars of sustainable development set by the Commission on Sustainable Development of the United Nations
This article investigated the relationship among foreign direct investment, trade openness and economic growth in Ghana for the period 1975-2017

Summary

Introduction

According to World Investment Report by the World Trade Organization and United Nations Conference on Trade and Development [2], the roles of FDI and trade openness have expanded to include not just the effect on growth and on income distribution and environmental quality which are the three main pillars of sustainable development set by the Commission on Sustainable Development of the United Nations. In an increasingly globalized economy, FDI and international trade, especially through exports and imports, enhance competition in the international markets and technology transfer and promote economic growth [4] [5]. The export expansion brings greater economies of scale, productivity and removes foreign exchange constraints, thereby providing greater access to international markets [7] while FDI can add-on knowledge and technology transfer and increase job opportunities boosting overall growth in the host country

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