LONG-RUN RELATIONSHIP AND CAUSALITY BETWEEN FOREIGN DIRECT INVESTMENT AND GROWTH: EVIDENCE FROM TEN AFRICAN COUNTRIES

Abstract

The aim of this paper is to re-examine the relationship between foreign direct investment and economic growth in the case of ten Sub-Saharan African countries. To this end, we use two newly econometric approaches, namely the Pesaran et al. (2001) approach to cointegration and the procedure for non-causality test of Toda and Yamamoto (1995). We use data from the 2008 World Investment Report dataset of the UNCTAD, the African Development Bank (2008) and the World Bank (2008) from 1970 to 2007. We show that there is a positive long-run relationship between foreign direct investment and economic growth in Angola, Cote d'Ivoire, Kenya, Liberia, Senegal and South Africa. However, foreign direct investment significantly causes economic growth in Angola, Cote d'Ivoire and Kenya, while growth causes foreign direct investment in Liberia and South Africa.