The Interactions between Foreign Direct Investment, Exchange Rate, Domestic Private Investment and the Growth of Sub-Saharan African Economies

Abstract

Abstract

Foreign direct investment (FDI) interacts with credit to private sector (CPS) and exchange rate to affect developing economy positively. This study examined the impact of the interactions between FDI, credit to private sector, and exchange rate on the growth of Sub-Saharan Africa economies. Data was collected from World Bank indicators and Bank for International Settlement from 1982 to 2018 for ten (10) selected countries, namely: Botswana, Burkina Faso, Central Africa Republic, Chad, Cote D’Ivoire, Malawi, Mali, Nigeria, Republic of Benin and South Africa. A Fixed Effect panel least squares regression in conjunction with correlation in an interactive framework were analyzed using E-view 9.0 econometric tool. The study finds that FDI through interaction with exchange rate negatively and significantly impact the economies of investigated African countries judging by the regression outcome. The correlation outcome exposes that credit to private sector interact with FDI to positively enhance economic growth in Africa. The study further reveals that gross savings have positive and significant effect on growth in the region. Therefore, the study recommends that African countries and indeed, developing countries should pursue policies and undertake necessary reforms aimed at encouraging inflows of foreign direct investment to their economies, while ensuring foreign exchange rate stability. Also, lending institutions should be motivated and supported to provide substantial portions of their credit assets for private sector investment owing to the potential they hold in promoting economic growth.