An Econometric Analysis of FDI and Economic Growth in Ghana

Stephany Abokzele Adongo

Abstract


Underpinning trends in investment flows has been a strong tendency towards liberalization in trade, investment and finance related policies. Currently, FDI has been used more as a market entry strategy for investors, rather than an investment strategy. FDI is expected to spur growth in GDP and provide the benefits of reduced cost through the realization of scale economies, and coordination advantages, especially for integrated supply chains. A fifteen year period of FDI inflow data to Ghana was collated from the Ministry of Trade and Industry, Ghana Statistical Service and the Ghana Investment Promotion Council. This study explored the impact of country risk on foreign direct investment (FDI) inflows into Ghana. The processes of this paper show that a positive long-run relationship exists between the variables. The ADF unit root test suggests that the variables are non-stationary at levels, but become stationary in the first differences. The Johansen co-integration test indicates that there is long-run relationship between FDI and GDPGR, and the effect is significant. Also, finding of Granger causality states that there is a bi-directional causality between FDI and GDPGR.


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