The Effect of Foreign Direct Investment (FDI) on the Ghanaian Economic Growth

Abstract

Foreign direct investment (FDI) has been an important source of economic growth for Ghana, bringing in capital investment, technology and management knowledge needed for economic growth. This paper studied the relationship between FDI and economic growth in Ghana for the period 1980-2012 using time series data. The data used in this study was mainly from a secondary source consisting of yearly observations for real GDP growth and foreign direct investment net inflows as a percent of GDP (FDI ratio). The data was sourced from the World Banks World Development Indicators database. The linear regression technique was applied using the yearly data to ascertain the effect of FDI on real GDP. The study establishes that FDI and other two control variables under consideration impact significantly on the economic development of Ghana. It was determined in the research that the increasing trend of FDI inflows has also significantly increased the GDP of the country. Therefore, the FDI inflows to Ghana is a key driver for economic growth and development and that it does not only boost capital formation but also enhances the quality of capital stock in the country.