Effects of foreign direct investment on economic growth in Ghana: the role of institutions

  • Received January 27, 2021;
    Accepted March 18, 2021;
    Published August 2, 2021
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/ed.20(1).2021.03
  • Article Info
    Volume 20 2021, Issue #1, pp. 23-34
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This work is licensed under a Creative Commons Attribution 4.0 International License

The role of institutions in both the inflow and the impact of foreign direct investment is of great im¬portance. The quality of institutions in a country can direct investment towards improving growth. This paper analyzes the individual and combined effect of foreign direct investment and institutions on economic growth in Ghana. The paper used the Auto Regressive Distributed Lag (ARDL) tech¬nique for secondary data obtained from 1995 to 2019. All data series, except for the quality institution index, were drawn from the World Bank Development Indicators. Institutional Quality Index data was obtained from the Heritage Foundation’s Economic Freedom Index website. The results of the ARDL model indicate that foreign direct investment and a quality institutional index together have a significantly positive effect on a country’s economic growth compared to their individual effects in both the short and long run. The study recommends that government policies should be aimed at attracting foreign direct investment while strengthening institutions and regulations to enhance output growth.

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    • Figure 1. Trend Analysis of FDI and Economic Growth
    • Table 1. Descriptive Statistics
    • Table 2. Unit Root Test
    • Table 3. Bound Test
    • Table 4. Estimated Long Run and Short Run Results in the ARDL Model
    • Table 5. Model Diagnostics and Stability Tests
    • Conceptualization
      Evans Kulu
    • Data curation
      Evans Kulu, Samuel Mensah, Prince Mike Sena
    • Formal Analysis
      Evans Kulu, Samuel Mensah, Prince Mike Sena
    • Writing – original draft
      Evans Kulu, Samuel Mensah, Prince Mike Sena
    • Writing – review & editing
      Evans Kulu, Samuel Mensah, Prince Mike Sena
    • Supervision
      Evans Kulu, Prince Mike Sena
    • Methodology
      Samuel Mensah
    • Software
      Prince Mike Sena