Foreign direct investment, dual gap model and economic development in sub-Saharan Africa

Abstract

Africa like other developing continents has the representation of limiting gaps of foreign exchange, investment and human capital skills. Sustainable development emphasizes that for the limits of both foreign exchange and savings to be reduced, there is need for Foreign Direct Investment (FDI) to flow inclusive of, foreign skills and technology diffusion for economic development. The objective of the research is to determine how the gaps of foreign exchange, investment and human capital skills has been reduced through the influx of foreign investment for the African economies. Pooled panel data between 2000 and 2018 was utilized for 39 African countries, and analysed with the fixed effect regression model. The results indicate that the influx of FDI has not brought about sufficient decline in the gaps for the selected African economies. The study recommends that government of developing countries need to select with care industries that foreign capital flows into in order to ensure tangible effect on investment domestically as well as deter crowding-out of capital. Furthermore, strategies on protection of domestic investors, enhanced export of production through industrial development as well as lesser consumption proportion, should be implemented, thereby, improving the balance of payment situation. These consequently would result into a gradual decline of the investment and the foreign exchange limits. Thus, resulting into a rise in domestic investment in addition to the much anticipated sustainable development goals of poverty reduction, total well-being and economic development in the continent.

Keywords

• african countries
• dual gap model
• foreign direct investment
• foreign exchange gaps
• savings gap
• skills gap