Repackaging FDI for inclusive growth: Nullifying effects and policy-relevant thresholds of governance

This study examines whether net foreign direct investment (FDI) to SSA contributes to inclusive growth in the region. The study further investigates whether SSA’s institutional fabric modulates the effect of net-FDI on inclusive growth in SSA. To this end, we draw data on 42 SSA countries for the period 1996 – 2020 for the analysis. The empirical evidence, which is based on the GMM estimator, shows that: (1) net-FDI impedes inclusive growth in SSA, and (2) the region’s weak institutional fabric amplifies the shared growth-deteriorating effect of FDI. Nonetheless, the optimism, which we provide by way of threshold analysis, shows that efforts aimed at improving regulatory efficiency and political stability yield favourable inclusive growth effects from the short-term through to the long-term. A few policy recommendations are discussed in the end.

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