Bi-Directional Relations between Foreign Investment and Key Macroeconomic Indicators among Developing Economies: A Study of Selected African Countries.

Abstract

Most developing countries face serious constraints in mobilizing resources required to fund their growth and development needs and a key sustainable option towards filling this gap is foreign investment. In this paper, the author investigated the significance of certain macroeconomic variables widely claimed as both determinants and effects of foreign investment amongst 20 selected African Countries. The investigation was done within the structural and strategic motive frameworks of foreign investment. Using the Vector Autoregression method, the author found some interesting results that tended to validate both classical and dependency theories of foreign investment. While foreign investment appears to be attracted to economies with relatively high economic output and other development indicators, empirical results show that foreign investment has not significantly stimulated growth in output but has been largely exploitative. The author also found that FDI and FPI gave contrasting results and recommends policy reforms to attract the amount and type of foreign investments needed to meet the development aspirations of Africa.