Juma, Mary-Ann--Thesis

Abstract
Many studies have attempted to estimate the impact of foreign direct investment
(FDI) on growth around the world, but very few have focused on Sub-Saharan Africa.
Accordingly, this thesis explores the effect of FDI on economic growth in the region,
using data from 43 countries over the period 1980-2009.
I employ ordinary least squares regressions with country fixed effects to answer
my primary research question, using real GDP growth as the dependent variable and
gross FDI inflows as a percentage of GDP as the key explanatory variable. My
regressions control for time-variant characteristics across the countries in my sample,
such as terms of trade, trade openness, and government expenditure. All variables are
averaged over non-overlapping three-year intervals to reduce business cycle effects, and
FDI is lagged to address endogeneity.
My results indicate that FDI is associated with higher growth in Sub-Saharan
Africa, particularly after the exclusion of outliers. I test for a difference in the effect of
FDI on growth in mineral-rich versus mineral-poor countries, and do not find that there is
a statistically significant difference between the two sets of countries. For robustness, I
repeat my analysis on five-year averaged data, and find these results to be consistent with
those found using the triennial data. Thus, I conclude that FDI has had a positive effect
on growth in Sub-Saharan Africa, and that African policy makers are justified in seeking
FDI as a way to accelerate growth in the future.
Keywords: Foreign Direct Investment; Economic growth; Sub-Saharan Africa