The FDI-Growth Nexus: A Comparative Analysis of Resource-Rich and Resource-Scarce African Economies

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Yimer, Addis
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African Economic Research Consortium
In an attempt to capture the impact that cross-country resource endowment differences may have on the FDI‒growth relationship, this study investigates the FDI‒growth nexus in Africa by categorizing the countries as resource-rich and resource scarce, for the period 2000‒2017. Thus, the study is a modest attempt to answer the following main questions: a) Do FDI inflows contribute to economic growth in the host country after controlling for endogeneity? b) Does being a natural resource-abundant/ scarce country alter the FDI‒growth nexus? Using a System GMM, both the direct and interaction effects of FDI on growth are investigated in a comparative framework across resource-rich and resource-scarce African countries. The results show that the effects of FDI on economic growth vary depending on resource richness of countries. While FDI is found to affect growth positively and significantly in resource-scarce African economies, no significant effect of FDI on growth is identified for the resource-rich category.
Africa; Economic growth; FDI; Resource-rich; Resource-scarce; System GMM