Abstract:
The study aimed to empirically examine the impact of foreign direct investment on economic
growth in the Southern African Development Community countries for the period 1980-2015.
The relation between foreign direct investment and economic growth has been a subject of
extensive discussion in the economic literature. The debate revolves around the growth
implications of foreign direct investment. The extraordinary increase in global FDI flows in the
last three decades triggered an interest to investigate the growth implications of such huge
amounts of cross-border capital movements. Owing to this surge in foreign direct investment
flows and the effort countries are putting forth to attract it, it would seem straightforward to
argue that foreign direct investment would convey net positive effects on economic growth of
a host country. From a theoretical standpoint foreign direct investment has been shown to
boost economic growth through technology transfer and diffusion. In light of the expected
benefits of foreign direct investment, many empirical studies have been conducted on this
subject matter. While the explosion of foreign direct investment flows is distinctive, the
evidence accumulated on the growth effects remains mixed. Using fixed effect panel data
analysis, on the overall, the findings of the study show a negative effect of FDI on economic
growth in the SADC countries for the period 1980 to 2015. The findings are not in tandem with
theoretical predictions from growth theorists and some empirical studies carried out on the
same topic. The findings of the study imply that FDI does not seem to have an independent
effect on economic growth for the panel of countries in the SADC region. This maybe because
FDI flows to Africa and into the SADC countries, in particular, are channelled mainly to the
extractive sector with little to no linkages with the other sectors of the host country economy.
The findings of the study also show that the growth-enhancing potential of FDI is higher in
middle-income countries than low-income countries in the SADC region.
