- Title
- Foreign direct investment, governance, economic growth and poverty reduction in Sub-Saharan Africa: three empirical essays
- Creator
- Niyibizi, Peace Aimee
- Relation
- University of Newcastle Research Higher Degree Thesis
- Resource Type
- thesis
- Date
- 2020
- Description
- Research Doctorate - Doctor of Philosophy (PhD)
- Description
- This thesis empirically investigates the relationship between foreign direct investment (FDI), governance, economic growth and poverty in Sub-Saharan Africa (SSA). Following the substantial expansion of FDI to developing countries, a plethora of literature has developed around FDI benefits, much of it contradictory. In addition, a range of policy incentives has been deployed to attract FDI. Increasing as a steady source of foreign exchange in SSA, FDI became unpredictable following the Global Financial Crisis in 2007–08. This has renewed interest in the relationship between FDI, growth and poverty and is reinforced by the fact that SSA has lagged behind other developing regions in economic growth and poverty reduction in the last three decades. There has been extensive work on the effect of FDI on economic growth, but to a lesser extent on poverty. The consensus is that FDI–growth and poverty nexuses are complex and unresolved. While it is argued that FDI can stimulate economic growth and poverty reduction, it also has the potential to create macroeconomic instability, thus retarding economic growth and exacerbating poverty. The impact of FDI on economic growth and poverty reduction is influenced by the absorptive capacity of the country, such as human capital, financial sector, and governance, among others. Given heterogeneous characteristics among SSA countries, an understanding of the role of absorptive capacities in the FDI–growth and poverty nexuses is critical to economic growth and poverty reduction. This thesis undertakes three empirical studies. The first empirical study investigates the effect of FDI on economic growth in SSA—at both the aggregate level and across income groupings—and how governance dimensions moderate that effect using an endogenous growth theoretic framework on a dataset of 40 countries over the period 1995–2015. After controlling for endogeneity and cross-sectional dependence (CD), the key findings are twofold. First, FDI is positively associated with economic growth in SSA, in aggregate and in low-income countries (LICs), but does not affect economic growth in middle-income countries (MICs). Second, the moderating effect of governance dimensions varies across income groupings and in SSA, in aggregate. Overall, the results indicate that governance weakens the growth effect of FDI in SSA, in aggregate and in LICs while mitigating the negative effect of FDI on economic growth in MICs. The second empirical study examines the effect of FDI on poverty in SSA, in aggregate and across income groupings, and explores the moderating role of governance. Based on the class of decomposable poverty measures (incidence, depth and severity), a poverty model is estimated controlling for endogeneity, heteroscedasticity, serial correlation and potential reverse causality. The results indicate that FDI reduces poverty in SSA irrespective of poverty measure and income grouping. However, the results reveal that the moderating role of governance on the FDI–poverty nexus differs across poverty measures. The empirical results show that governance improvements enhance FDI capabilities in reducing poverty incidence. Conversely, they lessen it when poverty depth and severity are considered. The third empirical study investigates FDI determinants mainly by exploring the effect of governance across its dimensions in SSA, in aggregate and across income groups. By controlling for endogeneity and CD and building on the Dunning’s eclectic paradigm, the key findings are threefold. First, the effect of governance on FDI differs across its dimensions in SSA, and across income groupings. Overall, LICs seems to be better off than MICs. Second, the results revealed that most governance dimensions influence FDI in non-resource-intensive countries. Third, the effect of governance appears to be a function of the conditional FDI distribution, with a deterrent effect at higher levels. The thesis makes three major contributions that have important policy implications. The first contribution is based on the findings of Study 1, which used a comprehensive dataset and novel econometric techniques to support the generally held view that FDI enhances economic growth in developing countries. This study also provides empirical evidence to highlight the importance of governance dimensions in influencing FDI effects on economic growth. By revealing differences across income groupings, Study 1 highlights the need to implement FDI policies while being cognisant of the characteristics of the country. The second contribution is based on the findings of Study 2. Utilising a comprehensive dataset on poverty, the study provides new evidence that FDI is capable of reducing poverty in SSA, and the findings are robust to alternative poverty measures and across income groupings. The results show the importance of ensuring effective governance mechanisms in SSA as this can influence FDI’s effect in reducing poverty. The third contribution draws from the findings of Study 3. By accounting for different income levels and resource intensity across countries, the results re-emphasise the importance of governance mechanisms in influencing FDI to SSA. The overall policy implication of the findings in this thesis is the need to implement policies—such as effective governance mechanisms, human capital skill base development and infrastructure development—aimed at attracting FDI, as it is critical for economic growth and poverty reduction in SSA.
- Subject
- foreign direct investment; economic growth; poverty reduction; governance; Sub-Saharan Africa
- Identifier
- http://hdl.handle.net/1959.13/1424157
- Identifier
- uon:38028
- Rights
- Copyright 2020 Peace Aimee Niyibizi
- Language
- eng
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| Thumbnail | File | Description | Size | Format | |||
|---|---|---|---|---|---|---|---|
| View Details Download | ATTACHMENT01 | Thesis | 3 MB | Adobe Acrobat PDF | View Details Download | ||
| View Details Download | ATTACHMENT02 | Abstract | 362 KB | Adobe Acrobat PDF | View Details Download |