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      Foreign Direct Investment and Economic Growth: Evidence from Sub-Saharan African Countries

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      ScienceOpen
      2nd International Engaged Scholarship Conference
      13-15 December 2023
      Foreign Direct Investment, Economic growth, Sub Saharan Africa, Westerlund error correction model (ECM) panel cointegration tests
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            Abstract

            The study examines the synergy between foreign direct investment and economic growth in a panel of seven selected sub-Saharan African countries, which are fast-growing and have high nominal GDP, over the period 1985–2022. The study employs the Westerlund error correction model (ECM) panel cointegration tests and a dynamic common-corrected estimator to control for cross-sectionaldependence in the model. In theory, foreign direct investment increases domestic production capacity, resulting in an anticipated improvement in trade and economic growth. The panel analysis reveals that economic growth is positively impacted by foreign direct investments. While the fixed effect controls for unobserved and time effects, the alternative method controls for cross-sectional dependence. Trade openness was used as a proxy to measure the potential effect of free trade in the countries under analysis. The results show that trade openness and trade share of GDP play a positive role in improving economic growth through foreign direct investment in the panel analysis. In order to gain more insights into the performance of regional economies and treaties, including the African Continental Free Trade Area (AfCFTA), it is recommended that a multidimensional analysis that includes the effect of country-specific institutional variables on attracting FDI, as well as the inclusion of more countries into the panel, unpack more insights into the relationship between FDI and GDP in sub-Saharan African countries.

            Author and article information

            Conference
            ScienceOpen
            15 December 2023
            Affiliations
            [1 ] University of South Africa ( https://ror.org/048cwvf49)
            Author notes
            Author information
            https://orcid.org/0000-0003-2978-3523
            Article
            10.14293/SBLUNISA.2023a014.oa
            ba29314b-9aad-4e06-8d7b-97cb03936cf5
            The Author

            Published under Creative Commons Attribution 4.0 International ( CC BY 4.0). Users are allowed to share (copy and redistribute the material in any medium or format) and adapt (remix, transform, and build upon the material for any purpose, even commercially), as long as the authors and the publisher are explicitly identified and properly acknowledged as the original source.

            2nd International Engaged Scholarship Conference
            2
            University of Botswana, Gaborone
            13-15 December 2023
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            ScienceOpen

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            Data sharing not applicable to this article as no datasets were generated or analysed during the current study.
            Economics
            Foreign Direct Investment,Economic growth,Sub Saharan Africa,Westerlund error correction model (ECM) panel cointegration tests

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