INTERACTIVE EFFECT OF FOREIGN DIRECT INVESTMENT (FDI) INFLOW AND ABSORPTIVE CAPACITY ON ECONOMIC GROWTH IN THE AFRICAN COUNTRIES

Abstract

Numerous studies have examined the impact of FDI inflows on economic growth, yet, fewer studies have considered the role of absorptive capacity (ABS) factors to influence FDI inflow on the host economic growth. Unlike existing studies, this study empirically investigates the interactive effect of FDI inflows and absorptive capacity factors on economic growth among the five African countries over the study period from 1970 to 2019. In line with the main objective, the study employed static panel OLS assuming the five African countries are indifferent as well as the panel cointegration to estimate short run and long run relationship, assuming the five African are different within the study periods. Results found that only FDI inflows and trade openness positively affects economic growth in the short run while in the long run, FDI inflow and financial development, as well as FDI inflow and infrastructural facilities have a positive impact on economic growth in the African countries. Therefore, the study recommends that the presence of the absorptive capacity factors matters, especially, trade openness, financial development and infrastructure will help to absorb FDI inflow optimally to stimulate economic growth in short run and long run in the African countries.