The Impact of Foreign Direct Investment (FDI) on the performance of the Agricultural Sector in Ghana

Abstract

The impact of foreign direct investment (FDI) on the economic growth of host economies has attracted significant debate in the literature with empirical evidence being inconclusive. Sectoral analysis was therefore introduced in the literature to understand the heterogenous response of the performance of the various economic sectors to changes in the inflows of FDI as opposed to the impact of the latter on the whole economy. On the sectoral paradigm, very little attention has been given to the agricultural sector which holds the key to food security in the world and poverty reduction in developing economies such as Ghana where the sector employs majority of the active working population. In this respect, our study looked at the impact of FDI on the performance of the agricultural sector in Ghana with data over the period 1980-2013 using Johansen cointegration test. We found that FDI negatively impacts the agricultural sector productivity in the long run but with positive relationship in the short run. We also found that the depreciation of the cedi negatively impacts the growth of the agricultural sector in the long run. Trade openness on the other hand had positive and significant long run impact on the agricultural sector. We recommend that the government harnesses trade relations, stabilizes the local currency and ensures that FDI inflows to agriculture and the entire economy are not harmful to the economy by way of capital and excessive profit repatriations.