Do FDI and foreign aid induce economic growth? Empirical evidence from sub-sahran Africa

Abstract

While most of the sub-Saharan African countries have been receiving a significant amount of foreign direct investment (FDI) and foreign aid for the last couple of decades, there is no consensus among the researchers about the contribution of FDI and foreign aid to the economic growth of African economy. This study, therefore, examines how FDI and Foreign aid induce the economic growth in sub-Saharan African economies by using panel data from a cross section of 40 sub-Saharan African countries with similar economic structure, background, stage of development, institutional arrangements, and culture. The identical characteristics of these countries are expected to make the inferences derived from the empirical results more valid. This study considers labor force, gross fixed capital, life expectancy, literacy rate, arable land and subscribers of mobile cellular as control variables. The empirical results provide an evidence of strong positive relationship between economic growth and FDI while foreign aid and economic growth turn out to be unrelated.