The economic growth and foreign direct investment nexus: Does democracy matter? Evidence from African countries

Abstract

This article investigates the impact of democracy on the foreign direct investment (FDI)economic growth nexus by considering both a country's current and past political regimes.We apply a linear dynamic panel data model to data from 53 African countries over the period 1989-2014. Standard errors of the estimates are Weidmeijer corrected, following an orthogonal deviations transformation. The results show that the direct impact of FDI on growth is positive and significant. Likewise, the stock of democracy plays a positive and significant role in the growth process. However, the positive impact of FDI on growth decreases with the improvement in the historical experience of a country with democracy. These findings imply that with contemporary efforts to expand political rights in Africa, it is critical to identify alternative channels that facilitate the transmission of the flow of FDI into further and sustainable growth. K E Y W O R D Sdemocracy, economic growth, FDI

Exploring Foreign Direct Investment–Economic Growth Nexus—Empirical Evidence from Central and Eastern European Countries

“…Throughout the sample period, there is missing data on many variables, which diminish our data set for each model differently. Following preceding studies [2,19,39,41,42,46,57,61], we consider our dependent variable as GDP per capita. In line with earlier studies [2,41,57,61,69], inflows of FDI were considered.…”

“…In line with earlier studies [2,41,57,61,69], inflows of FDI were considered. Furthermore, we comprise measures set out in the 2030 Agenda for Sustainable Development [48], relating to poverty [13], inequality of income distribution [59,112], education [3,13,20,34,39,[41][42][43]46,52,71,112,118], innovation [14,28,65,104], transport infrastructure [3,13,52,114], information technology [13,28], institutional quality [2,[13][14][15][18][19][20]28,39,41,42,44,46,52,107,115,11...…”

“…The estimate of each Worldwide Governance Indicators provides the nation's score on the aggregate indicator, in units of a standard normal distribution, fluctuating from roughly −2.5 to 2.5, with higher values pertaining to better governance. Moreover, country-level control measures are included, namely government expenditure [12,40,42,46,64,71,72,116], urbanization [69], domestic credit to the private sector [41,46,72] and trade [2,5,13,18,19,34,40,[42][43][44]46,52,53,55,61,64,69,72,118].…”

“…The most common methods identified in the literature concerning the influence of FDI on economic growth are panel data fixed-effects and random-effects estimations [1,2,13,28,41,53,64,65,69,107,114], as well as the generalized method of moments [9,18,[41][42][43][44][45]71,72,113,117]. Current paper employs the first approach, the econometric specifications being depicted as follows:…”

“…Previous papers explored the effect of FDI and institutional quality on economic growth for datasets covering Association of Southeast Asian Nations (hereinafter "ASEAN") states [37], developing countries, located in the lower-and middle-income groups [38], developing markets and developed economies [39], non-OECD nations [40], Pacific Island countries [41], African nations [42], North African states [43], Southern African countries [44], sub-Saharan African nations [45] or various groups of nations [46]. Therefore, the empirical evidence on foreign direct investment, institutional quality, economic growth link is limited for the CEECs.…”