Impact of Foreign Direct Investment on Economic Growth: Empirical Evidence from Ghana

Abstract

Foreign direct investment (FDI) has been a vital source of economic growth for Ghana, bringing in capital investment, technology and management knowledge needed for economic growth. This paper aims to study the relationship between FDI and economic growth in Ghana for the period 1980-2010 using time series data. The GDP, GDP growth rate, GNI, Manufacturing Value Added, External Debt Stock, Inflation, Trade, Industry Value added and Foreign Direct Investment net inflows as percent of GDP (FDI ratio). We used the simple ordinary least square (OLS) regressions and the empirical analysis is conducted by using annual data on FDI and other variables over the periods 1980 to 2010. We used annual data from IMF, International Financial Statistics tables, published by International Monetary Fund. The goal of this study is to determine the extent to which these variables are related. From this, we can conclude that the independent variables GDP, GDPg, GNI, MVA, GDPc and TRA are all significant to explain FDI since their corresponding p-values of the t-statistic are less than 5 percent and thus have an influence of FDI in Ghana. These findings embrace practical implications for policy makers, government and investors.