Reviewing Impacts of Foreign Direct Investments on the Macroeconomic Performance of Developing Countries

Abstract

Throughout the past two decades, many countries around the world have experienced substantial growth in their economies, driven by inflow of the foreign capital especially in the form of foreign direct investment (FDI). The share of net FDI in world GDP has grown five-fold through recent years, making the impact and consequences of FDI on economic growth a subject of ever-growing interest. The paper contributes in this context, by analyzing the impacts of impact of foreign direct investment on economic growth, if any, in Sudan during the period (1982-2007), also to investigate how to attract the required flow of FDI that is enough to fill saving-investment gap to sustain economic growth. With the hypothesis that sustained efforts to promote political and macroeconomic stability and implement essential structural reforms, and the policies of aligning some emerging markets has encouraged the inflow of FDI to Sudan in different sectors. The important findings are that FDI helps to promote economic growth in the Sudan, i.e. there is clear evidence of a one-way causality from FDI to economic growth for the whole period, in the sense that FDI have a significant positive effect on the GDP Growth, for it promotes exports and so balance of payments, provision of job opportunities and enhancing the quality of labor and production. However, the study finds that it is difficult to construct accurate and comparable measures of FDI data by sector for the Sudan as in most developing countries over several decades. Moreover, the tendency of major sources to present FDI data in broad aggregates limits the study of effects or impacts. The main recommendations are that the investment climate in the country must be improved through appropriate measures to keep pace with global economics developments, Government needed to establish a proper investment map serving the objectives of economic growth and developments consists of all data that may needed by foreign investors, supported by the necessary infrastructures. Government must develop and improve the periodic statistics concerning investment, foreign capital flows and sources of capital. Future researches in this area should analyze the causal link in a multivariate VAR analysis to account for other vital determinants of FDI and GDP growth.