Investment Inflow and Economic Stability: Evidence from sub-Saharan Africa
Keywords:
Keywords: Foreign direct investment, Foreign portfolio investment, Economic stability, Sub-Saharan African economies.Abstract
Abstract
Scholars as well as policymakers have extensively explored the impact of Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) on economic stability, particularly in sub-Saharan African economies. The general assumption is that FDI and FPI, when effectively harnessed, can foster economic stability, especially when the economic environment is conducive. This study investigates the role of investment inflow such as FDI and FPI play in fostering economic stability in selected sub - Saharan African countries, including Nigeria, Kenya, South Africa, Ethiopia and Ghana, using annual data from 1990 to 2023 obtained from the World Development Index (WDI). The analysis employs Driscoll-Kraay (1998) and White (1980) robust standard errors estimates from fixed effect models. The findings reveal that FDI has a positive and significant effect on economic stability, while FPI does not show a significant impact. Based on these results, it is recommended that African economies prioritize improving their investment climates to attract and sustain FDI, while also focusing on strengthening institutional frameworks to enhance the overall economic environment for both domestic and foreign investors. This can be achieved by ensuring macroeconomic stability, encouraging infrastructure development, and fostering partnerships between foreign investors and local businesses to maximize the benefits of FDI.
References
Azam, M. (2021). Economic determinants of foreign direct investment in Africa: Evidence from panel data. African Journal of Business Management, 4(5), 93-98.
Babatunde, A. (2011). Trade openness, infrastructure, FDI and growth in sub-Saharan Africa Countries. Journal of Management Policy and Practice, 3(6), 27-40
Barro, R. J. (2015). Economic Growth (3rd ed.). MIT Press.
Collier, P., & Pattillo, C. (2000). Investment and risk in Africa. In Investment and risk in Africa (pp. 3-30). London: Palgrave Macmillan UK.
Driscoll, J. C., & Kraay, A. C. (1998). Consistent covariance matrix estimation with spatially dependent panel data. The Review of Economics and Statistics, 80(4), 549-560.
Dukuly, F.S.,& Huang, K. (2020). The study on the impact of Liberia’s exports and imports on its economic growth. Open Journal of Business Management, 8(6), 2649 -2670.
Essers, D. (2013). Developing country vulnerability in light of the global financial crisis: Shock therapy?. Review of Development Finance, 3(2), 61-83.
Etale, E.L.M. & Etale, L. M. (2016). The relationship between exports, foreign direct investment and economic growth in Malaysia. International Journal of Business Management and Economic Research (IJBMER), 7(2), 572-578.
Gabriel, B. T., John, O. & Baryl, I. O. (2019). Capital flows and economic growth in nigeria: an econometric approach. International Journal of Research -Granthaalayah, 7(9), 183–199.
Gabriel, O., Orie, I., & Igwe, K. (2019). Political instability and capital inflows in Africa: Evidence from panel data analysis. African Development Review, 31(2), 122-138.
Ghosh, A. R. & Postelnyak, A. (2021). Growing together: the IMF and African low-income countries. Finance & Development, 58(4). Retrieved from https://www.imf.org/en/Publications/fandd/issues/2021/12/Africa-Low-Income-Countries.
Guru-Gharana, K. K. (2012). Relationships among export, FDI, and economic growth in India: An application of auto regressive distributed lag (ARDL) bounds testing approach., 1-18. Journal of International Business Research, 11(1)
Herrera-Echeverri, H., Haar, J., & Estévez-Bretón, J. B. (2014). Foreign direct investment, institutional quality, economic freedom and entrepreneurship in emerging markets. Journal of Business Research, 67(9), 1921-1932.
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74.
International Monetary Fund (IMF). (2023). "World Economic Outlook: Inflation Dynamics." Retrieved from [https://www.imf.org/en/Publications/WEO]
International Monetary Fund. (2023). World Economic Outlook: Countering Inflation and Sustaining Growth. IMF Publications.
Jaiblai, P. & Shenai, V. (2019). The Determinants of FDI in Sub-Saharan Economies: A Study of Data from 1990–2017. International Journal of Financial Studies, 7(3), 1-15.
Jirbo, B. V., Jonathan, D. & Atayi, A. V. (2022). The analysis of trade openness, foreign direct investment and economic growth in Economic Community of West African Countries (ECOWAS). American Journal of Multidisciplinary Research & Development (AJMRD), 04(01), 36-45.
Jirbo, M., Tahir, H., & Hassan, Y. (2020). Examining the bidirectional relationship between capital inflow and growth in Africa. African Journal of Economic Policy, 27(2), 210-230.
Jugurnath, B. Chuckun, N. & Fauzel, S. (2016). Foreign direct investment & economic growth in sub-Saharan Africa: An empirical study. Theoretical Economics Letters, 6, 798-807.
Jumanne, B. B. & Keong, C. C. (2018). Foreign direct investment and natural resources in sub-Saharan Africa: The role of institutions towards the Africa we want "2063 Vision". African Journal of Economic Review, 6(1), 14-32.
Jumanne, I., & Keong, C. (2018). The role of foreign direct investment and foreign portfolio investment on economic growth in sub-Saharan Africa. Journal of Economic Studies, 45(3), 500-520.
Kirabaeva, K. & Razin, A. (2010). Composition of international capital flows: A Survey (Bank of Canada Working Paper 2010-33). Retrieved from Bank of Canada website: https://www.bankofcanada.ca/.
Kurtishi-Kastrati, S. (2013). Impact of FDI on economic growth: An overview of the main theories of FDI and empirical research. European Scientific Journal, 9(7), 56-77.
Levin, A. Lin, C. F. & Chu, C. S. J. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108, 1-24.
Mahreen, M. (2019). The role of foreign portfolio investment in economic growth: Evidence from developing countries. International Journal of Finance & Economics, 24(3), 317-329.
Mahreen, Z. (2019). Impact of foreign direct investment on economic growth of Pakistan. Journal of Electronics and Computer Science, 4(2), 1-12.
Makoni, P. L. R. (2016). The role of financial market development in foreign direct investment and foreign portfolio investment in selected African economies (Doctoral dissertation, University of the Witwatersrand, Faculty of Commerce, Law and Management, Wits Business School).
Mishkin, F.S. (2016) The Economics of Money, Banking, and Financial Markets. 11th Edition, Pearson, Harlow.
Musibau, H. O., Yusuf, H., & Gold, K. (2017). Foreign direct investment and economic growth: Evidence from sub-Saharan Africa. Journal of Economics and Sustainable Development, 8(3), 85-92.
Nyang’oro, J. (2017). Capital flows and economic development: New insights from African economies. Journal of African Economies, 26(4), 345-363.
Ohiaeri, N. V. (2016). Foreign Portfolio Investment, Capital Flight and Capital Market Performance in Nigeeria (Doctoral dissertation, University of Lagos (Nigeria)).
Owusu-Manu, D. G., Edwards, D. J., Mohammed, A., Thwala, W. D., & Birch, T. (2019). Short run causal relationship between foreign direct investment (FDI) and infrastructure development. Journal of Engineering, Design and Technology, 17(6), 1202-1221.
Pesaran, M. H., Smith, R.J. & Shin, Y. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(2), 289-326.
Sakyi, D. Alagidede, P. & Adu, G. (2020). Foreign direct investment and economic growth in Africa: A meta-analysis. Journal of Economic Studies, 47(6), 1274-1303.
Sooreea-Bheemul, B. Rasool, U.S & Sooreea, R. (2020). Analyzing impacts of foreign direct investment on private sector in economic growth of Iran. International Journal of Economics and Financial Issues, 10(3), 195-207.
Sooreea-Bheemul, B., Moheeput, A., & Jowaheer, V. (2020). FDI, FPI, and economic growth: Evidence from African economies. Journal of Developing Areas, 54(1), 121-134.
Tessema, W. K., (2019). Impact of foreign direct investment on export performance: The Case of Ethiopia. Masters Theses. Retrieved from https://thekeep.eiu.edu/theses/4443
Tiwari, A. K. & Mutascu, M. (2011). Economic growth and FDI in Asia: A panel-data approach. Economic Analysis and Policy, 41(2), 173-187.
Todaro, M. P., & Smith, S. C. (2020). Economic Development (13th ed.). Pearson.
Toyin, O.W., & Oludayo A.E (2020). Dynamic effects of foreign portfolio investment on economic growth in Nigeria . Financial Markets, Institutions and Risks, 4(3), 5-12.
UNCTAD. (2021). World Investment Report 2021: Investing in sustainable recovery. Retrieved from https://unctad.org/publication/world-investment-report-202.
United Nations (2008). Achieving Sustainable Development and Promoting Development Cooperation: Dialogues at the Economic and Social Council [PDF]. Retrieved from https://www.un.org/en/ecosoc/docs/pdfs/fina_08-45773.pdf
United Nations Conference on Trade and Development (UNCTAD). (2022). World Investment Report 2022: International Tax Reforms and Sustainable Investment. United Nations Publications.
Wako, H. A. (2018). Foreign direct investment in sub-Saharan Africa: Beyond its growth effect. Maastricht Economic and social Research institute on Innovation and Technology (UNU-MERIT).
Wako, H. A. (2023). Financial development, foreign direct investment, and economic growth in Sub-Saharan Africa: Evidence from panel data. Economic Modelling, 69, 56-67.
Wang, X., Chibsah, R. & Garti, E. (2020). The relationship between economic growth, international trade and foreign direct investment. International Journal of Economics, Commerce and Management, 8(1), 1-10.
White, H. (1980). "A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity." Econometrica, 48(4), 817-838
World Bank. (2021). World Development Report 2021: Data for Better Lives. World Bank Publications.
World Bank. (2022). Global Economic Prospects: Improving the Outlook Despite Uncertainty. World Bank.
World Bank. (2023). "Exchange Rates and Economic Performance." Retrieved from [https://www.worldbank.org/en/topic/exchangerate]
Yap, G., & Saha, S. (2013). Do political instability, terrorism, and corruption have deterring effects on tourism development even in the presence of UNESCO heritage? A cross-country panel estimate. Tourism Analysis, 18(5), 587-599.
Zakharov, N. (2019). Does corruption hinder investment? Evidence from Russian regions. European Journal of Political Economy, 56, 39-61.
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Author(s)
This work is licensed under a Creative Commons Attribution 4.0 International License.
Articles published in the Journal of Advanced Multidisciplinary Studies (JAMS) are licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0), unless otherwise stated. Authors retain copyright of their work and grant JAMS the right of first publication.
