Repackaging FDI for inclusive growth: Nullifying effects and policy-relevant thresholds of governance

Abstract

This study examines whether foreign direct investment (FDI) to SSA contributes to inclusive growth in the region. The study further investigates whether SSA's institutional fabric moderates the effect of FDI on inclusive growth in SSA. To this end, we draw data on 42 SSA countries for the period 1996–2020 for the analysis. The empirical evidence, which is based on the GMM estimator, shows that: (1) FDI impedes inclusive growth in SSA, and (2) the region's weak institutional fabric amplifies the shared growth-deteriorating effect of FDI. Nonetheless, the optimism, which we provide by way of threshold analysis, shows that efforts aimed at improving regulatory efficiency enhance inclusive growth from the short-term through to the long-term. The study concludes that robust structures for regulatory efficiency and corruption control are critical for moderating FDI to promote inclusive growth in SSA. A few policy recommendations are discussed in the end.