The Effects of Foreign Direct Investment, Trade Openness, External Debt Stock and Exports on Economic Growth in Sub-Saharan African Countries
DOI:
https://doi.org/10.63556/tisej.2025.1600Keywords:
Economic growth, Foreign direct investments, External debt stock, Trade openness, ExportAbstract
This study aims to empirically examine the determinants of economic growth in Sub-Saharan African (SSA) countries. The study aims to contribute to the understanding of macroeconomic dynamics, which are of great importance for the sustainability of economic growth. In particular, four key elements frequently discussed in open economies—foreign direct investments, external debt stock, trade openness, and export variables—have been included in the analysis. The model, which was created for 21 SSA countries using annual panel data from 1975 to 2023, took into account both cross-sectional dependence and heterogeneity. In this regard, the estimates were made using the Dynamic Common Correlated Effects Mean Group (DCCEMG) method. According to the empirical findings, foreign direct investment has a positive and statistically significant effect on economic growth. On the other hand, it was found that the external debt stock has a negative and significant effect on economic growth. Trade deficit and export variables, on the other hand, did not show a statistically significant effect. Furthermore, the study investigated the causal relationship between the variables. Findings from the Emirmahmutoğlu–Köse causality test revealed no significant relationships at the panel level. It was observed that the causal relationship emerged more at the country level and in a heterogeneous manner. The findings of the study highlight the need to develop policy recommendations aimed at promoting structural reforms to encourage foreign direct investment, strengthening debt management, and transforming foreign trade into a değeri-added-oriented structure in order to achieve sustainable growth in SSA countries. In this context, the study contributes to the literature both in terms of its regional scope and methodological approach.
References
Ajuh, A. I., & Oyeanu, E. (2021). Impact of external debt on economic growth in Nigeria. International Journal of Mechanical Engineering and Technology (IJMET), 12(7), 49-57. doi: https://doi.org/10.34218/IJMET.12.7.2021.007
Amna Intisar, R., Yaseen, M. R., Kousar, R., Usman, M., & Makhdum, M. S. A. (2020). Impact of trade openness and human capital on economic growth: a comparative investigation of Asian countries. Sustainability, 12(7), 2930. doi: https://doi.org/10.3390/su12072930
Banday, U. J., Murugan, S., & Maryam, J. (2021). Foreign direct investment, trade openness and economic growth in BRICS countries: evidences from panel data. Transnational Corporations Review, 13(2), 211-221. doi: https://doi.org/10.1080/19186444.2020.1851162
Breusch, T. S., & Pagan, A. R. (1980). The Lagrange multiplier test and its applications to model specification in econometrics. The review of economic studies, 47(1), 239-253.
Chibalamula, H. C., Evans, Y., Kachelo, M., & Bamwesigye, D. (2023). The effect of foreign direct investment and trade openness on economic growth: Evidence from five African countries. AGRIS on-line Papers in Economics and Informatics, 15(1), 35-46. https://doi.org/10.7160/aol.2023.150103
Chudik, A., & Pesaran, M. H. (2015). Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors. Journal of econometrics, 188(2), 393-420. doi: https://doi.org/10.1016/j.jeconom.2015.03.007
Çınar, M., & Nulambeh, N. (2018). Foreign direct investment, trade openness and economic growth: A panel data analysis for sub-Saharan Africa. Business and Economics Research Journal, 9(4). doi:10.20409/berj.2018.136
Darwin, R., Wulan Sari, D., & Heriqbaldi, U. (2022). Dynamic linkages between energy consumption, foreign direct investment, and economic growth: A New insight from developing countries in Asia. International Journal of Energy Economics and Policy, 12(6), 30-36. doi:10.32479/ijeep.13552
Dünya Bankası. (2025). Dünya Kalkınma Göstergeleri. [Erişim Tarihi: 01.04.2025] https://databank.worldbank.org/source/world-development-indicators
Emako, E., Nuru, S., & Menza, M. (2022). The effect of foreign direct investment on economic growth in developing countries. Transnational Corporations Review, 14(4), 382-401. doi: https://doi.org/10.1080/19186444.2022.2146967
Emirmahmutoğlu, F. & Köse, N. (2011). "Testing for Granger causality in heterogeneous mixed panels." Economic Modelling, 28(3), 870–876.
Findlay, R. (1978). Relative backwardness, direct foreign investment, and the transfer of technology: a simple dynamic model. The Quarterly Journal of Economics, 92(1), 1-16.
Goldberg, P., Khandelwal, A., Pavcnik, N., & Topalova, P. (2009). Trade liberalization and new imported inputs. American economic review, 99(2), 494-500. doi:10.1257/aer. 99.2.494
Gövdeli, T. (2019). External debt and economic growth in Turkey: An empirical analysis. Sosyoekonomi, 27(40), 119-130. doi:10.17233/sosyoekonomi.2019.02.07
Hossain, R., Roy, C. K., & Akter, R. (2022). The effects of foreign direct investment and trade openness on economic growth amid crises in Asian economies. Economic Journal of Emerging Markets, 231-243. doi:10.20885/ejem.vol14.iss2.art7
Hye, Q. M. A., Wizarat, S., & Lau, W.-Y. (2016). The impact of trade openness on economic growth in China: An empirical analysis. The Journal of Asian Finance, Economics and Business, 3(3), 27-37. doi:10.13106/jafeb.2016.vol3.no3.27
Ibrahim, T., & Farah, A. (2020). External debt stock and economic growth in Somalia (1990-2016). doi: https://mpra.ub.uni-muenchen.de/100334/
Jalil, A., & Rauf, A. (2021). Revisiting the link between trade openness and economic growth using panel methods. The Journal of International Trade & Economic Development, 30(8), 1168-1187. doi: https://doi.org/10.1080/09638199.2021.1938638
Keho, Y. (2017). The impact of trade openness on economic growth: The case of Cote d’Ivoire. Cogent Economics & Finance, 5(1), 1332820. doi: https://doi.org/10.1080/23322039.2017.1332820
Kong, Q., Peng, D., Ni, Y., Jiang, X., & Wang, Z. (2021). Trade openness and economic growth quality of China: Empirical analysis using ARDL model. Finance Research Letters, 38, 101488. doi: https://doi.org/10.1016/j.frl.2020.101488
Malefane, M. R., & Odhiambo, N. M. (2018). Impact of trade openness on economic growth: Empirical evidence from South Africa. International Economics/Economia Internazionale, 71(4).
Manasseh, C. O., Abada, F. C., Okiche, E. L., Okanya, O., Nwakoby, I. C., Offu, P., . . . Nwonye, N. G. (2022). External debt and economic growth in Sub-Saharan Africa: Does governance matter? Plos one, 17(3), e0264082. doi: https://doi.org/10.1371/journal.pone.0264082
Mawutor, J. K. M., Sogah, E., Christian, F. G., Aboagye, D., Preko, A., Mensah, B. D., & Boateng, O. N. (2023). Foreign direct investment, remittances, real exchange rate, imports, and economic growth in Ghana: An ARDL approach. Cogent Economics & Finance, 11(1), 2185343. doi: https://doi.org/10.1080/23322039.2023.2185343
Mohsin, M., Ullah, H., Iqbal, N., Iqbal, W., & Taghizadeh-Hesary, F. (2021). How external debt led to economic growth in South Asia: A policy perspective analysis from quantile regression. Economic Analysis and Policy, 72, 423-437. doi: https://doi.org/10.1016/j.eap.2021.09.012
Nguyen, A.-T., Anwar, S., Alexander, W. R. J., & Lu, S.-H. (2022). Openness to trade, foreign direct investment, and economic growth in Vietnam. Applied Economics, 54(29), 3373-3391. doi: https://doi.org/10.1080/00036846.2021.2009112
Nguyen, M.-L. T., & Bui, T. N. (2021). Trade openness and economic growth: A study on Asean-6. Economies, 9(3), 113. doi: https://doi.org/10.3390/economies9030113
Nketiah, E., Cai, X., Adjei, M., & Boamah, B. B. (2019). Foreign direct investment, trade openness and economic growth: Evidence from Ghana. Open Journal of Business and Management, 8(01), 39. doi:10.4236/ojbm.2020.81003
Nowbutsing, B. M. (2014). The impact of openness on economic growth: Case of Indian Ocean rim countries. Journal of economics and development studies, 2(2), 407-427.
Okwu, A. T., Oseni, I. O., & Obiakor, R. T. (2020). Does foreign direct investment enhance economic growth? Evidence from 30 leading global economies. Global Journal of Emerging Market Economies, 12(2), 217-230. doi:10.1177/0974910120919042
Oppong-Baah, T., Bo, Y., Twi-Brempong, C., Amoah, E. O., Prempeh, N. A., & Addai, M. (2022). The Impact of trade openness on economic growth: The case of Ghana and Nigeria. Journal of Human Resource and Sustainability Studies, 10(1), 142-160. doi: https://doi.org/10.4236/jhrss.2022.101010
Oyegoke, E. O., & Aras, O. N. (2021). Impact of foreign direct investment on economic growth in Nigeria. doi: https://doi.org/10.31039/jomeino.2021.5.1.2
Pesaran, M. H. (2004). General diagnostic tests for cross section dependence in panels. . Cambridge Working Papers, 1240.
Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross‐section dependence. Journal of applied econometrics, 22(2), 265-312. doi:10.1002/jae.951
Pesaran, M. H., & Yamagata, T. (2008). Testing slope homogeneity in large panels. Journal of econometrics, 142(1), 50-93. doi: https://doi.org/10.1016/j.jeconom.2007.05.010
Quoc, C. H., & Thi, C. D. (2018). Analysis of foreign direct investment and economic growth in Vietnam. International Journal of Business, Economics and Law, 15(5), 19-27.
Radmehr, R., Ali, E. B., Shayanmehr, S., Saghaian, S., Darbandi, E., Agbozo, E., & Sarkodie, S. A. (2022). Assessing the global drivers of sustained economic development: the role of trade openness, financial development, and FDI. Sustainability, 14(21), 14023. doi: https://doi.org/10.3390/su142114023
Raghutla, C. (2020). The effect of trade openness on economic growth: Some empirical evidence from emerging market economies. Journal of Public Affairs, 20(3), e2081. doi:10.1002/pa.2081
Rakshit, B. (2022). Dynamics between trade openness, FDI and economic growth: evidence from an emerging economy. Journal of International Trade Law and Policy, 21(1), 16-41. doi:10.1108/JITLP-01-2021-0004
Rani, R., & Kumar, N. (2018). Panel data analysis of financial development, trade openness, and economic growth: Evidence from BRICS countries. Emerging Economy Studies, 4(1), 1-18. doi:10.1177/2394901518767023
Rodriguez-Clare, A. (1996). Multinationals, linkages, and economic development. The American economic review, 852-873.
Rodrik, D. (1988). Imperfect competition, scale economies, and trade policy in developing countries. In Trade policy issues and empirical analysis (pp. 109-144): University of Chicago Press.
Saidi, S., Mani, V., Mefteh, H., Shahbaz, M., & Akhtar, P. (2020). Dynamic linkages between transport, logistics, foreign direct Investment, and economic growth: Empirical evidence from developing countries. Transportation Research Part A: Policy and Practice, 141, 277-293. doi: https://doi.org/10.1016/j.tra.2020.09.020
Sobirov, Y., Jeong, J. Y., Karimov, M. U. u., & Bekjanov, D. (2023). Do FDI and trade openness matter for economic growth in CIS Countries? Evidence from panel ARDL. Journal of East-West Business, 29(4), 345-374. doi: https://doi.org/10.1080/10669868.2023.2242854
Soomro, A. N., Kumar, J., & Kumarı, J. (2022). The dynamic relationship between FDI, ICT, trade openness, and economic growth: Evidence from BRICS countries. The Journal of Asian Finance, Economics and Business, 9(2), 295-303. doi:10.13106/jafeb.2022.vol9.no2.0295
Swamy, P. A. (1970). Efficient inference in a random coefficient regression model. Econometrica: Journal of the Econometric Society, 311-323.
Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66(1–2), 225–250. https://doi.org/10.1016/0304-4076(94)01616-8
Uçar, M. (2025). Ekonomik büyüme, doğal sermaye ve doğrudan yabancı yatırım arasındaki ilişki: MINT ülkelerinden kanıtlar. Üçüncü Sektör Sosyal Ekonomi Dergisi, 60(1), 481-495. doi:10.15659/3.sektor-sosyal-ekonomi.25.02.2582
Yeboua, K. (2021). Foreign direct investment and economic growth in Africa: New empirical approach on the role of institutional development. Journal of African Business, 22(3), 361-378. doi: https://doi.org/10.1080/15228916.2020.1770040
Zaman, M., Pinglu, C., Hussain, S. I., Ullah, A., & Qian, N. (2021). Does regional integration matter for sustainable economic growth? Fostering the role of FDI, trade openness, IT exports, and capital formation in BRI countries. Heliyon, 7(12). doi: https://doi.org/10.1016/j.heliyon.2021.e08559
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Third Sector Social Economic Review
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
