What Are the Impact of FDI to Economic Growth?

FDI has been perceived as important factor for economic growth in the African countries. FDI seems to contribute in the economic growth through the following channels. (a)  Firms spills over effect (b) introducing new technology (c) enhancing R& D services (d) increasing employment opportunities (e) enhancing trade development. However, the empirical literatures has not clear consensus in believing that FDI has positive contribution to the economic growth. Furthermore, the causal relation between FDI and economic growth has still remained as country specific results. Unfortunately, most of these researches have been conducted in developed and middle income countries especially East Asian countries

What is the Role of Export on Economic Growth

Export and economic growth relationship has been a long discussion among the researchers. In fact, most of previous literatures have mixed results. Some of literatures found that, export has positive role in economic growth whilst others found that export do not support economic growth. In that sense, the policy makers have to take into consideration this discussion. On one hand, from reviews we found that, export does not guarantee  linkage with the overall economic growt

Does The Inflows Of Foreign Aid Dampen Or Stimulate FDI to EAC Members? Evidence From East African Community Members

Recently, the World Bank and IMF have been more interested in understanding whether foreign aid inflows from multilateral or bilateral donors have catalyzing effect on the crowd out effect to FDI. From this fact, the paper investigates the causal relationship between foreign aid, both bilateral and multilateral aid with FDI inflows to EAC members. Using time analysis techniques of VECM and Granger causality,  the results are mixed. On one hand,  foreign aid (bilateral and multilateral)  causes FDI in two countries. On the other hand, we found no relationship between foreign aid and FDI in other two countries. The results calls for appropriate policy implementations

Review of Theoretical and Empirical Literatures on the Role of Foreign Aid to Developing Countries

This study provides reviews relating to the impact of foreign aid to economic growth. Several literatures suggested that, foreign aid has a directly positive impact of the economic growth. However, some studies empirically proved that,  good economic environment is main prerequisites to ensure the positive impact of foreign aid to the economic growth. Furthermore, several studies have shown that,  foreign aid has negative impact of the economic growth. Most of studies in previous literature has been analyzed the relationship between foreign aid and economic growth in East Asian economies and not in African countries. From this gap, new empirical studies in  to examine the channels in which foreign aid affect economic growth is needed especially in  African economies, which receive largest foreign aid for long time. Keywords: Foreign aid  and Economic growth

Relationships among foreign aid, foreign direct investment, and economic growth in East African community members

This study has been conducted on a selected sample of EAC members, namely Kenya,Uganda, Rwanda, and Burundi. The study has two main objectives, first being to examine the role of foreign aid in economic growth in the long run, and their interaction in the short run. Second objective is to examine the role of foreign aid (bilateral and multilateral) in FDI inflows in the long run, and their interaction in the short run. In achieving these objectives, the study utilized endogenous growth model originated from neoclassical growth theories. To accomplish these objectives, the study used Dynamic Ordinary Least Square (DOLS) and Vector Error Correction model (VECM).DOLS method is more suitable in cases which there are serial correlation and a small sample size. The study found that, in the long run FDI has significant positive impact on economic growth for Kenya and Burundi. On the other hand, the impact is negative for Uganda. In the short run, the study found that, FDI has no impact on economic growth for all EAC members. However, the study revealed that, in the short run, increase in FDI enhances more foreign aid inflows in Rwanda; whilst in Burundi FDI promotes domestic investment. The study also found that, in the long run, export does not have any impact on economic growth Kenya, Uganda and Rwanda. However, in Burundi, export has a positive and significant role in economic growth. Moreover, in the short run, the results suggest that, export does not have any impact on economic growth for three EAC members out of four. The only impact is found in Uganda, where export granger causes economic growth. Furthermore, for the case of foreign aid we found that, in the long run it has a positive and significant impact of economic growth for Kenya and Burundi. In contrast, we found the negative and significant impact of foreign aid on economic growth of Uganda. On the other hand, in the short run, the results suggest that, foreign aid causes economic growth and domestic investment in Uganda. Furthermore, we found that, an increase in foreign aid causes increase in exports in Kenya whilst, in Burundi foreign aid promotes domestic investment. However, this impact failed to interact with the economic growth in either country. According to the results, it is worthwhile to form appropriate policies that will ensure positive impact of FDI on economic growth for all EAC members in the long run and the short run. On the other hand, major policies to improve export performances and ensuring a positive impact on economic growth have to be reformed. Furthermore, it is worthwhile to reform policies so that, foreign aid would have a sustainable positive impact on economic growth. For the second objective, the impact of bilateral aid in the long run is negative in the case of Rwanda and positive for Uganda. On the other hand, in the short run bilateral aid does not have any impact on FDI for any countries. In the long run, multilateral aid has significant positive and negative impact on Rwanda and Burundi respectively. Furthermore, results suggest that, multilateral aid has no impact to FDI inflows in Uganda and Kenya. Not only that, but also, in the short run, multilateral aid has no impact to FDI for any EAC members. In general, to enhance FDI inflows, Rwanda and Burundi have to encourage more multilateral aid whilst Uganda, has to encourage more bilateral aid