Exploring the relationships between foreign direct investment, foreign aid and economic growth : evidence from Africa

Abstract

Focusing on African economic panel data from 1990-2018, this study set out to analyse the relationships between foreign direct investment (FDI), official development assistance (ODA) and economic growth. Specifically, the study sought to evaluate the deterministic relationships between FDI, ODA and economic growth in African countries; to examine the long-run cointegrating relationships between FDI, foreign aid and economic growth in Africa; and to determine causality between FDI, foreign aid and economic growth in Africa, and the robustness thereof. By using the dynamic two-step system Generalised Method of Moments approach to panel data, the study confirmed that a significant positive deterministic relationship exists between FDI and economic growth. In addition, the results of the ARDL (Pooled Mean Group) bounds test approach towards cointegration on the panel data showed that there were significant positive long-run relationships between ODA and economic growth; between economic growth and FDI, and a significant negative long-run cointegrating relationship between FDI and ODA. Furthermore, by using the ARDL and Error Correction Model (ECM) estimators, the study inferred causality between the key variables of economic growth, FDI and ODA, and the robustness thereof. The study concluded that there is uni-directional long-run causality between economic growth and FDI, between FDI and ODA, and between ODA and economic growth. Also, the only uni-directional short-run causality was established between economic growth and FDI, implying that economic growth causes an increase in FDI in the long, as well as in the short run. The causality findings confirm the initial doubt, that FDI and ODA are not necessarily complementary forms of economic growth funding, but rather that ODA in the long run causes economic growth, and economic growth, in turn, causes an increase in FDI in both the long and short run in the selection of African countries in the study. The findings of the study lead to various scholarly and policy implications and recommendations for academics, researchers, African countries’ governments, donors and investors alike. Indicating the need for African countries to align their national strategies to their foreign and domestic policies for sustainable development.

Deur op Afrika se ekonomiese paneeldata van 1990 tot 2018 te fokus, het hierdie studie gepoog om die verwantskappe tussen direkte buitelandse belegging (DBB), amptelike ontwikkelingshulp (AOH) en ekonomiese groei te ontleed. Meer spesifiek, het die studie gepoog om die deterministiese verwantskappe tussen DBB, AOH en ekonomiese groei in Afrikalande te evalueer; die mede-integrerende langtermynverwantskappe tussen DBB, buitelandse hulp en ekonomiese groei in Afrika te ondersoek; en die kousaliteit tussen DBB, buitelandse hulp en ekonomiese groei in Afrika (en die robuustheid daarvan) te bepaal. Deur gebruikmaking van die dinamiese tweestap-stelsel Algemene-Metode-van-Oomblikke-benadering tot paneeldata het die studie ’n betekenisvolle positiewe deterministiese verwantskap tussen DBB and ekonomiese groei bevestig. Daarbenewens het die uitslae van die Outoregressiewe Verspreide Vertraging (ORVN) (Gepoolde Gemiddelde Groep) grenstoetsbenadering tot die mede-integrering van die paneeldata betekenisvolle positiewe langtermynverwantskappe tussen AOH en ekonomiese groei en tussen ekonomiese groei en DBB, sowel as ’n betekenisvolle negatiewe mede-integrerende langtermynverwantskap tussen DBB en AOH, aangedui. Deur gebruikmaking van die ORVN en foutkorreksiemodel-beramers het die studie kousaliteit tussen the sleutelveranderlikes van ekonomiese groei, DBB en AOH (en die robuustheid daarvan) afgelei. Die studie het tot die gevolgtrekking gekom dat daar ’n eenrigting-langtermynkousaliteit bestaan tussen ekonomiese groei en DBB, tussen DBB en AOH, en tussen AOH en ekonomiese groei. Verder is daar vasgestel dat die enigste eenrigting-korttermynkousaliteit tussen ekonomiese groei en DBB was, wat impliseer dat ekonomiese groei tot ’n verhoging van DBB oor die langtermyn en oor die korttermyn lei. Die kousaliteitsbevindings bevestig die aanvanklike twyfel dat DBB en AOH nie noodwendig komplementêre vorms van befondsing vir ekonomiese groei is nie, en eerder dat AOH oor die langtermyn tot ekonomiese groei lei en ekonomiese groei op sy beurt ’n verhoging van DBB oor beide die langtermyn en die korttermyn in die geselekteerde Afrikalande van die studie teweeggebring het. Die bevindings van die studie het verskeie wetenskaplike en beleidsimplikasies, sowel as aanbevelings vir akademici, navorsers, die regerings van Afrikalande, skenkers en beleggers. Dit dui aan dat Afrikalande hul nasionale strategieë in lyn moet bring met hul buitelandse en binnelandse beleide vir volhoubare ontwikkeling.

Ngokugxila kudatha yephaneli yezomnotho yase-Afrika kusukela ngonyaka we-1990-2018, lolu cwaningo luhlose ukuhlaziya ubudlelwano phakathi kokutshalwa kwezimali okuqondile kwamanye amazwe (eyaziwa kafuphi ngokuthi yi-FDI/UZO), usizo lokuthuthukiswa okusemthethweni (UTM) nokukhula komnotho. Ngokuqondile, ucwaningo lwalufuna ukuhlola ubudlelwano obunqunyiwe phakathi ko-UZO, UTM nokukhula komnotho emazweni ase-Afrika; ukuhlola ubudlelwano obudidiyelwe isikhathi eside phakathi ko-UZO, usizo lwangaphandle kanye nokukhula komnotho e-Afrika; kanye nokunquma imbangela phakathi ko-UZO, usizo lwangaphandle kanye nokukhula komnotho e-Afrika, kanye nokuqina kwayo. Ngokusebenzisa indlela yezinyathelo ezimbili eziguquguqukayo Indlela Eyinjjwayelo Yesikhashana kudatha yephaneli, ucwaningo luqinisekise ukuthi kukhona ubudlelwano obubalulekile bokunquma obukhona phakathi ko-UZO nokukhula komnotho. Ukwengeza, imiphumela ye-ARDL (i-Pooled Mean Group) yokuhlola indlela yokuhlola imingcele ekuhlanganiseni kwedatha yephaneli ibonise ukuthi kwakukhona ubudlelwano obuhle besikhathi eside phakathi ko-UTH nokukhula komnotho; phakathi kokukhula komnotho kanye ne-UZO, kanye nobudlelwano obubi obubalulekile obunesikhathi eside obuhlanganisayo phakathi ko-UZO ne-UTM. Ngaphezu kwalokho, ngokusebenzisa izilinganiso ze-ARDL ne-Error Correction Model (ECM), ucwaningo luveze imbangela phakathi kokuhluka okubalulekile kokukhula komnotho, UZO no-UTM, kanye nokuqina kwakho. Ucwaningo luphethe ngokuthi kunendlela eyodwa ethatha isikhathi eside eyimbangela phakathi kokukhula komnotho kanye no-UZO, phakathi ko-UZO no-UTM, naphakathi ko-UTM nokukhula komnotho. Futhi, okuwukuphela kwendlela yendlela emfishane neqondile ecezile yasungulwa phakathi kokukhula komnotho kanye no-UZO, okusho ukuthi ukukhula komnotho kubangela ukwanda ko-UZO ngokuhamba kwesikhathi, kanye nangesikhathi esifushane. Okutholiwe yisifundo kudale ukuqinisekisa ukungabaza kokuqala, ukuthi UZO no-UTM akuzona ngempela izinhlobo ezihambisanayo zokuxhasa ukukhula komnotho, kodwa kunalokho ukuthi UTM ngokuhamba kwesikhathi kudala ukukhula komnotho, futhi ukukhula komnotho, nakho, kubangela ukwanda ko-UZO kukho kokubili isikhathi eside nokwenza kancane ekukhethweni kwamazwe ase-Afrika ocwaningweni. Okutholwe kulolu cwaningo kuholela emiphumeleni ehlukahlukene yezifundo nenqubomgomo kanye nezincomo zezifundiswa, abacwaningi, ohulumeni bamazwe ase-Afrika, abaxhasi kanye nabatshalizimali ngokufanayo. Ukukhombisa isidingo sokuthi amazwe ase-Afrika aqondanise amasu awo kazwelonke nezinqubomgomo zawo zangaphandle nezasekhaya ukuze kube khona ukuthuthuka okusimeme.