The Impact of FDI and Foreign Aid on the Economic Growth: Empirical Evidence from Sub-Saharan African Countries
Author (s)
Afolabi Tunde Ahmed & Imran Ur Rahman
Abstract
Many are the presumptions of the effect of Foreign aid on growth on one side and the effect of Foreign Direct investment (FDI) on the other side. Our research empirically examines the impact of FDI and Foreign Aid on economic growth of Sub-Saharan African countries. To do so, we answer three questions: What drives the economic growth in Sub-Saharan Africa? What are the impacts of FDI and Foreign Aid on economic growth? and which relationship does exist in one part between FDI and economic growth and the other part between Foreign Aid and economic growth? To tackle our objectives we formulated four hypotheses with Gravity model and Two Stages Generalized Method of Moment analysis. Our findings lead us to conclude: Firstly, three fundamental factors responsible for the economic growth: the country fundamentals (the population, the capital formation), the governance implication (governance effectiveness, Regulatory Quality), and the macro stabilities (Foreign Direct Investment, Foreign Aid, Trade) are responsible and the key factors for the growth in SSA. Secondly, FDI and Aid have a positive and highly significant effect on the GDP. Thirdly, FDI and Aid have short run relationship with the economic growth. And fourthly, our result fall in line with others which have found that domestic factors are vital in promoting the growth effects of FDI. Nevertheless, the findings of this study diverge from others in the literature studies. Even though other researches in the literature works hypothesize that FDI has no absolute positive effect on growth, this study finds that FDI plays a direct role in promoting growth.
Keywords: FDI, Foreign Aid, Economic Growth, Sub-Saharan Africa, Governance Effectiveness, Regulatory Quality.
| Title: | The Impact of FDI and Foreign Aid on the Economic Growth: Empirical Evidence from Sub-Saharan African Countries |
|---|---|
| Author: |
Afolabi Tunde Ahmed & Imran Ur Rahman |
| Journal Name: | International Journal of Science and Business |
| Website: | ijsab.com |
| ISSN: | ISSN 2520-4750 (Online), ISSN 2521-3040 (Print) |
| DOI: | https://doi.org/10.5281/zenodo.3870562 |
| Media: | Online |
| Volume: | 4 |
| Issue: | 6 |
| Acceptance Date: | 17/05/2020 |
| Date of Publication: | 31/05/2020 |
| PDF URL: | https://ijsab.com/wp-content/uploads/554.pdf |
| Free download: | Available |
| Page: | 53-70 |
| First Page: | 53 |
| Last Page: | 70 |
| Paper Type: | Research Paper |
| Current Status: | Published |
Cite This Article:
Afolabi Tunde Ahmed & Imran Ur Rahman (2020). The Impact of FDI and Foreign Aid on the Economic Growth: Empirical Evidence from Sub-Saharan African Countries. International Journal of Science and Business, 4(6), 53-70. doi: https://doi.org/10.5281/zenodo.3870562
Retrieved from https://ijsab.com/wp-content/uploads/531.pdf
About Author (s)
Tunde Ahmed Afolabi, Ph.D. School of International Trade and Economics, University of International Business and Economics (UIBE), Beijing, China, sirdanielastro12@yahoo.com
Imran Ur Rahman, (Corresponding Author) Associate Professor, Ph.D., Center for Trans-Himalaya Studies, Leshan Normal University, Sichuan China, 2388018157@qq.com
DOI: https://doi.org/10.5281/zenodo.3870562