The paper investigates what may be the impact of the predicted fall of FDI on GDP in SSA. The United Nations Conference on Trade and Development (2019) indicated that FDI flows to Africa increased by 11 percent to $46 billion, despite declines in many of the larger recipient countries. The increasing of FDI flows was justified by continued resource-seeking inflows, some diversified investments, and a recovery in South Africa after several years of low-level inflows.
However, the predictions of 2020 regarding FDI flows are dramatic. Compared to 2019, global flows of FDI are expected to decrease by up 40 percent from their value $1.5 trillion in 2020 as a result of the COVID-19 pandemic (United Nations Conference on Trade and Development, 2020). This organization predicted a fall of FDI to reach -45 to -30 in Europe, North America -35 to -20, -40 to -25 in Africa, -45 to -30 in Asia, Latin America and the Caribbean -55 to – 40, and in transition economies -45 to -30. The prediction for Africa of a 25-40 percent decline is based on GDP growth projections as well as a range of investment-specific factors. The same organization indicated a decline in GDP growth for Africa from 3.2 per cent to -2.8 percent. The primary goal of this study is to investigate the relationship between FDI and GDP through import (IMP), export (EXP), gross capital formation (GCF), and household consumption (HHC), and government expenses (GEXP).
Specifically, the study tends to address the following sub-objectives: Analyzing the relationship between FDI-GDP-HHC-GEXP-GCF-EXP-IMP. Analyzing direct, and indirect impact of FDI on GDP for 40 SSA altogether. Investigating the impact of FDI on GDP in SSA countries whose FDI is under median on one hand, and SSA countries whose FDI is greater than median, on the other hand. Finally, comparing the impact of FDI on GDP in 12 SSA with highest and lowest FDI.
Table of Contents
1. INTRODUCTION
2. LITERATURE REVIEW
3. DATA METHODOLOGY
3.1. Data
3.2. Data analysis
4. EMPIRICAL RESULTS AND DISCUSSION
4.1. DESCRIPTIVE STATISTICS
4.2. Correlation and regression results
4.3. Direct and indirect effects analysis
5. CONCLUSION AND POLICY IMPLICATIONS
6. REFERENCE
Research Objectives and Focus
This study investigates the potential economic impact of a predicted significant decline in Foreign Direct Investment (FDI) on the Gross Domestic Product (GDP) of Sub-Saharan African (SSA) nations, focusing on how this decline propagates through key macroeconomic components.
- Analysis of the relationship between FDI and GDP components (HHC, GEXP, GCF, EXP, IMP).
- Evaluation of direct and indirect effects of FDI on GDP across 40 SSA countries.
- Comparative analysis of FDI impact in countries with FDI levels above versus below the median.
- Investigation of economic consequences for countries with the highest and lowest FDI inflows.
Excerpt from the Book
1. INTRODUCTION
The paper investigates what may be the impact of the predicted fall of FDI on GDP in SSA. The United Nations Conference on Trade and Development (2019) indicated that FDI flows to Africa increased by 11 percent to $46 billion, despite declines in many of the larger recipient countries. The increasing of FDI flows was justified by continued resource-seeking inflows, some diversified investments, and a recovery in South Africa after several years of low-level inflows. However, the predictions of 2020 regarding FDI flows are dramatic. Compared to 2019, global flows of FDI are expected to decrease by up 40 percent from their value $1.5 trillion in 2020 as a result of the COVID-19 pandemic (United Nations Conference on Trade and Development, 2020). This organization predicted a fall of FDI to reach -45 to -30 in Europe, North America -35 to -20, -40 to -25 in Africa, -45 to -30 in Asia, Latin America and the Caribbean -55 to – 40, and in transition economies -45 to -30. The prediction for Africa of a 25-40 percent decline is based on GDP growth projections as well as a range of investment-specific factors. The same organization indicated a decline in GDP growth for Africa from 3.2 per cent to -2.8 percent.
While the existing literature has provided numerous studies on the positive effects of FDI on economic growth in host-country, very little is known about how the decline in FDI affects all component of GDP. The prediction made by the United Nations Conference on Trade and Development (2019) does not tell which country will be more affected by the fall of FDI than other. The prediction does not consider the relationship between the components of the equation of GDP such as HHC, GEXP, GCF, EXP, and IMP.
Summary of Chapters
1. INTRODUCTION: Provides the context of declining FDI flows to Africa due to the COVID-19 pandemic and outlines the study's research objectives.
2. LITERATURE REVIEW: Examines existing academic studies and institutional reports regarding the relationship between FDI and economic growth in host countries.
3. DATA METHODOLOGY: Details the data collection processes, country groupings based on median FDI, and the statistical methods (robust regression, mediation, bootstrap) used for analysis.
4. EMPIRICAL RESULTS AND DISCUSSION: Presents descriptive statistics, correlation matrices, and the results of the regression and mediation analyses testing the impact of FDI on GDP.
5. CONCLUSION AND POLICY IMPLICATIONS: Summarizes the findings, highlighting the dramatic potential impact of FDI decline on SSA economies and the interconnectedness of GDP components.
6. REFERENCE: Lists the academic and institutional sources utilized throughout the research.
Keywords
Foreign Direct Investment, Gross Domestic Product, Household Consumption, Government Expenses, Gross Capital Formation, Export, Import, Robust Regression, Mediation Analysis, Bootstrap Methods, Sub-Saharan Africa, Economic Growth, COVID-19 Impact, Investment Law, Technology Spillovers.
Frequently Asked Questions
What is the primary scope of this research?
The paper examines the potential economic impact of a projected 25-40% decline in Foreign Direct Investment (FDI) on the Gross Domestic Product (GDP) of countries in Sub-Saharan Africa.
What are the central thematic areas?
The research focuses on the interdependencies between FDI and major GDP components, specifically household consumption, government expenditures, gross capital formation, exports, and imports.
What is the primary research goal?
The study aims to analyze the direct and indirect influence of FDI on GDP and compare how these effects vary across different SSA countries based on their respective FDI inflow levels.
Which scientific methods are applied?
The analysis employs Spearman correlation, robust regression, robust mediation analysis, and bootstrap methods to analyze data collected from 1995 to 2018.
What is covered in the main body?
The main body covers the theoretical review, the methodology for grouping countries based on median FDI, descriptive statistics, and an empirical analysis of direct and indirect effects of FDI on GDP components.
Which keywords characterize this work?
Key terms include Foreign Direct Investment, GDP, Sub-Saharan Africa, robust regression, mediation analysis, and macroeconomic indicators like consumption, exports, and capital formation.
How does FDI affect SSA countries specifically?
The study finds that the economy of countries with lower-than-median FDI is more strongly influenced by FDI fluctuations, making the potential impact of an investment decline more dramatic for them.
What is the role of GDP components in the analysis?
These components act as mediator variables; the study demonstrates that FDI does not only affect GDP directly, but also indirectly through its impact on consumption, government spending, and trade.
- Arbeit zitieren
- Antoine Niyungeko (Autor:in), 2020, Evaluating the Impact of the Predicted Fall of Foreign Direct Investment on Sub-Sahara African Countries' Economy, München, GRIN Verlag, https://www.grin.com/document/915437
