Accounting for Foreign Direct Investment in Ghanaian Economy

Abstract

FDI inflows into Ghana have been identified to be lower than other middle income countries; however, various empirical studies – including studies done in Ghana – have identified FDI to have a positive effect on economic growth. This study sought to account for the effect of FDI on economic growth using a two stage least square econometrics analysis. A quarterly time series data spanning 2004 to 2011 for selected variables were used for the econometric analysis. The results found FDI to have a positive effect on economic growth but the effect was found to be insignificant. Financial development and exports growth were identified as having significant negative effects on economic growth. The researchers recommend that Ghana reconsiders its liberal FDI policy to ensure that FDI benefits the country immensely.
Key words: Investment; arbitrage; internalization; productivity