The African Financial Review July-August 2014 | Page 43

a country-by-country time- series approach is adopted, policy
prescriptions are more likely to be based on evidences peculiar
to each country.

It is against this background that this study wants to address
the following questions: what is the impact of FDI on growth?
Is FSD relevant for the flow of FDI into an economy? What
factors are responsible for attracting FDI inflow? Are these factors
specific to certain countries? Why does FDI contribute to the
growth process of some countries and not the economic growth
of other countries? Does FDI generate positive externalities
(spillover) for the host country? What is the future implication
of FDI, FSD on growth in terms of projections?

Answers to the above questions are rather conflicting. This
might be based on the fact that the study employs a time series
analysis. The empirical evidence suggests that there are conflicting
effects of FDI on growth caused by different FSD indicators used.
However, on the average, it was found that FDI impacts positively
on the economic growth process. It is not in all cases that the
interactive effects of FSD indicators lead to growth thus negating
the hypothesis of Alfaro et al. (2003) about the importance of
FSD in FDI host countries.

Following this introductory section, we arranged the study
as follows: section two presents some stylized facts on FDI flows
as well as FSD indicators in the region while methodology is
provided in section three. Consequent upon this, empirical results

are presented in section four. Section five concludes that threshold
effect of FSD on FDI-growth nexus is not applicable to Africa.
This is hinged on the fact that the threshold effects usually occur
in developed countries with lower financial openness.

1

2

For example, if the same amount of FDI is prevailing in two economies, holding all
other factors constant, financially well-developed economy will generate three times
additional growth as compared to financially weak economy (Cattaneo, 2011).

Background analysis

This section is divided into two parts. The first part eluci- dates
some stylized fact about FDI on both global and regional basis.
The second part gives analysis of FDI and growth nexus in fifteen
selected countries in Africa.

Flows of FDI

This subsection is further divided into three parts. The first part
discusses FDI’s flow on the global perspective; a brief historical
exposition of FDI into both developed and developing regions
of the world would be analyzed. The second aspect of this subsection focuses majorly on developing countries while the last
part would be dedi- cated to selected countries in Africa.

Global FDI flow

From Table 1, developed economies had continually had the
largest share of the global flow. The reasons attributed to this
cannot be far fetched from the well developed and organized
infrastructure as well as stable government policies. It is not

Hong Kong, Singapore, South Korea, and Taiwan.

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