Foreign direct investment (FDI) is one of the economic growth stimulus due to its associated variables such as capital investment, technical know-how, knowledge transfer and managerial competence required for economic growth. In the last decade, China has emerged on the international financial scene as both financier and investment partner to African economies. Many African economies such as the oil producing and exporting ones have witnessed streams of China’s FDI in their economies whereas non-oil exporting ones have accessed some of China’s FDI in selective sectors. This paper aims at investigating the relationship between China’s FDI and economic growth in Ghana measured by real average annual domestic product (GDP) per capita growth for the period 2001-2010. By using ordinary least squares (OLS) regression model, the result indicates that China’s FDI has negative significant effect on Ghana’s economic growth. However, it exerts different effects on value added in the three economic sectors.
Table of Contents
1. Introduction
2. Literature Review on FDI and Economic Growth
3. Inward FDI Trend and Performance in Ghana (FDI Performance Index)
a. Capital formation
b. Employment Generation, Technology and Skills Transfer
c. Economic Diversification
4. China’s Outward FDI Performance in Ghana
5. Empirical Analysis
5.1 Theoretical Model
5.2 Data
5.3 Empirical Evidence
6. Conclusion
Research Objectives and Themes
The primary objective of this study is to empirically investigate the relationship between China's Outward Foreign Direct Investment (FDI) and economic growth in Ghana, specifically analyzing the impact on real average annual GDP per capita growth for the period 2001-2010.
- The role of Chinese FDI as a financier and investment partner in African economies.
- Sector-specific impacts of Chinese FDI on Ghana's agriculture, manufacturing, and services sectors.
- Evaluation of FDI performance indicators and capital formation trends in Ghana.
- Empirical assessment using an augmented Solow production function and OLS regression modeling.
- The causal relationship between foreign capital inflows and economic development in a developing nation.
Excerpt from the Book
3. Inward FDI Trend and Performance in Ghana (FDI Performance Index)
Free flow of capital across country borders allows capital to seek out the highest rate of returns and according to Feldstein (2000), comes with several advantages which include reduction of risk faced by owners of capital thereby enabling them to diversify their investment and lending portfolios; limitation of the abilities of governments to pursue bad policies; and the spread of best practices of corporate governance, accounting rules and legal traditions. In addition to Feldstein, Razin and Sadka (2001) observed that host countries gains from FDI can take several forms:
i) FDI contributes to human capital development in the recipient countries as a result of employee training in the course of operating new businesses.
ii) Profits generated by FDI contribute to corporate tax revenue in the host country.
iii) FDI allows for technology transfer, spillover and promotes competition in the domestic input market.
Ghana was one of the countries in West Africa that enjoyed streams of foreign direct investment in the 1970s. Net foreign direct investment inflows to Ghana has been marked by fluctuations between different period points. In 1975, FDI net flows in the country was US$70.87 million dropping to minus US$18.26 million the following year. It picked up again in 1977 with a net flow of US$19.22 million only to drop in the subsequent two years to US$9.70 million and minus US$2.80 million in 1978 and 1979 respectively. By 2010, Ghana’s FDI net flows has increased more than 35 times form its 1975 figure to US$2.53 billion representing an average yearly increase of US$1 million. Foreign direct investment net flows as a percentage of Ghana’s gross domestic product (GDP) in 2010 was 8.07 percent, the highest over the country’s 35 years history of FDI attraction whereas the lowest value being -0.66 was in 1976.
Summary of Chapters
1. Introduction: Outlines the rise of China as a major financier in Africa and introduces the study's objective to examine the specific impact of Chinese FDI on Ghana's GDP growth.
2. Literature Review on FDI and Economic Growth: Examines theoretical perspectives and previous empirical studies regarding the determinants of FDI and its transmission into economic growth via technology diffusion.
3. Inward FDI Trend and Performance in Ghana (FDI Performance Index): Analyzes the history of FDI inflows into Ghana, covering capital formation, employment generation, and sector contributions.
4. China’s Outward FDI Performance in Ghana: Investigates the specific trends and sectoral distribution of Chinese investment in the Ghanaian economy from 2001 to 2010.
5. Empirical Analysis: Presents the augmented Solow production function, data sources, and OLS regression results to estimate the impact of Chinese FDI on Ghana's growth.
6. Conclusion: Summarizes the key findings, noting that while Chinese FDI has sector-specific effects, it overall indicates a negative significant effect on aggregate growth, highlighting a need for policy caution.
Keywords
China, FDI, Ghana, GDP growth per capita, economic growth, structural adjustment, capital formation, technology transfer, empirical analysis, OLS regression, sub-Saharan Africa, investment performance, agriculture, manufacturing, services.
Frequently Asked Questions
What is the core focus of this research paper?
The paper fundamentally investigates the economic impact of China’s Outward Foreign Direct Investment (FDI) on Ghana’s GDP per capita growth between 2001 and 2010.
What are the primary thematic areas covered in the study?
The study covers the history of FDI in Ghana, the sectoral distribution of Chinese capital, and an empirical analysis of how these investments influence both aggregate economic growth and specific value-added sectors.
What is the main objective or research question?
The primary aim is to determine if Chinese FDI exerts a positive effect on Ghana’s economic growth, testing the hypothesis that these capital inflows correlate positively with the standard of living in the country.
Which scientific methods are utilized?
The research employs an augmented Solow production function and uses Ordinary Least Squares (OLS) regression models, complemented by Granger Causality tests to verify causal relationships.
What is addressed in the main part of the document?
The main body provides a literature review, a detailed performance analysis of inward FDI in Ghana, a breakdown of China’s investment portfolio across different sectors, and an empirical model estimation.
Which keywords define this work?
The research is characterized by terms such as China, FDI, Ghana, GDP growth per capita, capital formation, and empirical analysis.
How does Chinese FDI in Ghana compare to its impact on the agricultural sector?
While the empirical results suggest a negative impact of Chinese FDI on aggregate economic growth, the study specifically finds a positive and significant effect on value added within Ghana's agricultural or primary sector.
Does the paper conclude that Chinese investments are universally beneficial?
No, the conclusion explicitly states that not all forms of Chinese outward investments are beneficial to the Ghanaian economy and suggests that policymakers should be cautious in their pursuit of such investments.
- Citar trabajo
- Stephen Bodybobton Antwi (Autor), 2012, China’s Outward Foreign Direct Investment Impact on Economic Growth in Developing Countries: Empirical Evidence from Ghana, Múnich, GRIN Verlag, https://www.grin.com/document/204435
