Browsing by Author "Mutenyo, John"

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    Determinants and effects of foreign direct investment in sub-Saharan Africa
    (University of Dar es Salaam, 2008) Mutenyo, John
    This study was set out to examine three related issues: First, the factors that influence FDI inflow to SSA; second, whether FDI stimulates economic growth in SSA; and third, whether FDI substitutes (crowds-in) domestic investment in SSA. The generalized methods of moments (GMM) Dynamic panel estimator, designed by Arellano and Bond (1991) was used to examine the determinants of FDI. Results showed that market growth potential, rate of return to investment, openness to trade, infrastructure and urbanization, positively and significantly influence FDI inflow, while, macroeconomic instability, negatively affects FDI inflows. This seems to suggest that foreign investors are attracted more to countries that are open to the rest of the world, with good infrastructure and are macro-economically stable. The empirical results on the impact of FDI on economic growth in the SSA economies were motivated by the endogenous growth model. Using the GMM dynamic panel analysis estimator, findings showed that FDI positively and significantly impacts on economic growth; while macroeconomic instability (inflation), lack of political rights and civil liberties, negatively and significantly affect economic growth in SSA. This suggests that a good mix of economic and political climate is necessary for sustainable growth in the SSA region. A flexible accelerator investment model, 2SLS together with the standard random and fixed panel regressions were used to determine the impact of FDI on domestic private investment. The findings show that FDI leads to economic growth in SSA, the effect of FDI on economic growth is derived from overall higher induced level of investment rather than efficiency gains. Policy-makers therefore, need to promote FDI inflows to SSA but more so in those sectors where FDI crowds- in domestic private investment.