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The economic growth and foreign direct investment nexus: Does democracy matter? Evidence from African countries
Author(s) -
Awad Atif,
Ragab Hoda
Publication year - 2017
Publication title -
thunderbird international business review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.553
H-Index - 37
eISSN - 1520-6874
pISSN - 1096-4762
DOI - 10.1002/tie.21948
Subject(s) - foreign direct investment , nexus (standard) , democracy , economics , panel data , international economics , development economics , politics , stock (firearms) , international trade , economic system , macroeconomics , political science , econometrics , geography , computer science , law , embedded system , archaeology
This article investigates the impact of democracy on the foreign direct investment (FDI)–economic growth nexus by considering both a country's current and past political regimes. We apply a linear dynamic panel data model to data from 53 African countries over the period 1989–2014. Standard errors of the estimates are Weidmeijer corrected, following an orthogonal deviations transformation. The results show that the direct impact of FDI on growth is positive and significant. Likewise, the stock of democracy plays a positive and significant role in the growth process. However, the positive impact of FDI on growth decreases with the improvement in the historical experience of a country with democracy. These findings imply that with contemporary efforts to expand political rights in Africa, it is critical to identify alternative channels that facilitate the transmission of the flow of FDI into further and sustainable growth.