Istituto di Economia Internazionale - Foreign Direct Investment and Inclusive Human Development in Sub-Saharan African Countries: Domestic Conditions Matter

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Corresponding Author:
Sodiq Arogundade, School of Economics, College of Business and Economics, University of Johannesburg, South Africa

Coauthors:
Joel Hinaunye Eita, School of Economics, College of Business and Economics, University of Johannesburg, South Africa
Mduduzi Biyase, School of Economics, College of Business and Economics, University of Johannesburg, South Africa

Foreign Direct Investment and Inclusive Human Development in Sub-Saharan African Countries: Domestic Conditions Matter

Volume 74 - Issue 4, November 2021
(pp. 463-498)
JEL classification: F23, H54, I30, O43
Keywords: Inclusive Human Development, Foreign Direct Investment, Local Economic Conditions, Panel Smooth Transition Regression Model and Sub-Saharan African Countries

Abstract

The controversies that trail whether FDI’s impact is conditional on certain intermediating variables has become a recurring discourse in the FDI-welfare literature. While the quality of institution has prominently featured as playing a vital role on the one hand, the level of infrastructure has also been elected as good candidate on the other hand. This study examines the necessary local economic conditions required for the existence of positive spillovers from multinationals’ investment in improving inclusive human development. In achieving this, a panel 28 SSA countries from 1996-2018 was explored using panel smooth transition regression model (PSTR). The results lend support for the conditional impact of FDI on inclusive human development. The study further supports the view that institutional quality and infrastructure are germane in enhancing the impact of FDI on welfare distribution. This implies that the more SSA countries improve the conditions of their economies, the more they unlock the benefits of FDI in terms of job creation, technological spillovers, and welfare improvement. These results have important policy implications.

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Foreign Direct Investment and Inclusive Human Development in Sub-Saharan African Countries: Domestic Conditions Matter

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Institute for International Economics of the Genoa Chamber of Commerce

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of the Genoa Chamber of Commerce