African Journal of Social Sciences Volume 2 Number 4 (2012) 114-124 ISSN 2045-8452 (Print) ISSN 2045-8460 (Online) www.sachajournals.com

DOES FDI CAUSE ECONOMIC GROWTH? EVIDENCE FROM SELECTED COUNTRIES IN AFRICA AND ASIA ABDULLAHI, Yahya Zakari1; ALIERO, Haruna Mohammed1 and YUSUF, Musa Adamu1 1

Department of Economics, Economics Faculty of Social Sciences, Usmanu Danfodiyo University, Sokoto, Sokoto Nigeria

ABSTRACT This study examines the role of foreign direct investment (FDI) on economic growth, making a comparison between selected countries of Africa and Asia. We utilized data ata for 30 countries, countries 15 each from Africa and Asia for the period 1990 to 2009. The Hausman test was used to determine the proper model specification among OLS, fixed effect and random effect models. First, we analyzed the aggregate data and later disaggregated the data into into Africa and Asia in order to assess the regional impact of FDI on economic economic growth. Empirical results reveal that FDI has positive relationship with GDP growth for both Africa and Asia. Asia We also report evidence of one-way one way causality for Africa and no such evidence for Asia. We conclude that FDI promotes promote economic growth and thus, we recommend commend for more openness of the economies, more investment in infrastructure infrastructure and more political commitment in the fight against corruption. Keywords: FDI, Economic Growth, Africa, Asia. JEL Classification: C1, C C44, F2, F23 1. INTRODUCTION The role of Foreign Direct Investment (FDI) on economic growth is well studied in the literature. These studies include empirical and theoretical works covering both developed and developing countries. The basis for most of the empirical studies on FDI centered cen on the traditional neo-classical classical and the endogenous growth theories. Results from numerous empirical empirica studies conducted such as Lumbila (2005) and Ilhan (2007) 2007) to investigate whether growth is influenced by FDI can best be described as mixed because of of conflicting evidences. However, the role of FDI on economic growth cannot be over-emphasized. over emphasized. It is echoed in the New Partnership for Africa’s Development (NEPAD), as it is perceived to be a key resource for the translation of NEPAD’s vision of growth and and development into reality. It is believed that Africa, like many other developing developing regions of the world, needs considerable inflow of external resources in order to fill the saving and foreign exchange gaps and strides to sustainable growth level in order to tackle the current widespread poverty (Ajayi, 2006).

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Furthermore, FDI serves as an important source of capital that complements domestic investment, it creates new job opportunities, provides technology transfer, management skills, marketing strategy and foreign exchange which boosts economic growth (Zhang, 2006; Ilhan 2007). This is in addition to structural changes in forms of export promotion, fostering efficiency via healthy competition, increase in the overall aggregate demand as well as enhancing welfare of consumers among others. FDI has been recognized as a growth-enhancing factor in the host economies. On one side, FDI is known as a catalyst for output growth, capital accumulation, and technological progress, increase employment, and exports among others (Lamine, and Yang 2010) On the other side, the view that FDI has tremendous benefits to host countries has been widely criticized by many. Marxist scholars maintain that FDI has negative impact and may perpetuate the dependency relationship between advanced and poor economies. They may compete out local firms using their superior mechanisms. FDI may damage host economies by conquering domestic entrepreneurship through using their superior knowledge such as worldwide contacts and advertising skills, and may lead to inequalities owing to uneven development which may influence government policies in an unfavorable manner. Also FDI may weaken balance of payments as profits are repatriated and may have negative effect on the growth prospects of the host economy if they result in substantial reverse flows in the form of remittances of profits and dividends (Todaro and Smith, 2005). Over the years, FDI has contributed immensely to the development of many countries through technology transfer, provision of employment opportunities, competition, bridging the balance of trade gap and provision of managerial skills amongst others. For example, Ahmed, et al. (2003) notes that by the late 1980s, major policy reforms and market friendly incentives were initiated in many African countries so as to encourage the accumulation of capital and more efficient allocation of resources. As part of the structural adjustment program, financial markets were restructured in most of the countries, with a major emphasis on trade liberalization and reduction or removal of barriers to trade. In addition, they have taken steps to restore and maintain macroeconomic stability through devaluation of overvalued national currencies and the reduction of inflation rates and budget deficits, elimination of various tax obstacles and the reduction of debt burden as well as improvement in the legal and other institutional barriers among others. In spite of these enormous measures taken by African countries by way of economic reforms which aim at increasing the role of the private sector, the level of FDI inflows appears to remain rather low and the growths of FDI in these African countries have not been appreciable. Too often, potential investors discount the African continent as a location for investment because the negative image of the region as a whole conceals the complex diversity of economic performance in individual countries (Obwona, 2004). From the foregoing, this research intends to examine the impact of FDI on economic growth as well as determining the direction of causality between FDI and economic growth among selected African and Asian countries. 1.1 THEORETICAL FRAMEWORK AND LITERATURE REVIEW The theoretical foundation that most researches on foreign direct investment (FDI) utilize is found in the traditional neo-classical growth theories and the new growth theories i.e. endogenous growth theories. The former is based on Solow’s growth model (1956) which emphasized that FDI promotes economic growth by increasing the volume of investment (Petrakos et al.; 2007). Therefore the theoretical framework of this study is based on endogenous growth models which provided theoretical foundation upon which most researches on FDI used. However, this study does not claim endogenous growth model to be free from shortcomings one of which is the symmetrical assumption.

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A good number of researches have been carried out on FDI growth nexus, common in the literature are those of Li and Liu (2005); report a strong complementary connection between FDI and economic growth Lumbila (2005) report FDI exerts a positive impact on growth in Africa; Zhang (2006) report FDI promote income Growth; Seetanah and Khadaroo (2007) find FDI as an important element in economic growth. However, the works of Chowdhury and Mavrotas (2005), Sridharan et al (2009), Samad, A. (2009), Georgantopoulos and Tsamis (2011) are amongst those that uses robust econometric technique to investigate the relationship around the world and reported mixed results. For example, Georgantopoulos and Tsamis (2011) found no bidirectional causation in Greece and report unidirectional link running from GDP to FDI. Sridharan et al (2009) report in their study of BRICS (Brazil, Russia, India, China and South Africa) bidirectional causation for Brazil, Russia and South Africa and FDI leads growth (unidirectional) for India and China. In a panel study of China, Japan, India, South Korea and Indonesia using data for 1993 to 2011, Agrawal and Khan (2011) investigated the impact of FDI on GDP Growth and report that “FDI promotes economic growth, and further provides an estimate that one dollar of FDI adds about 7 dollars to the GDP of each of the five countries”. Similarly, Rabiei and Masoudi (2012) examine FDI growth nexus in D8 countries namely; Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan and Turkey. Results shows FDI have positive effect on growth in D8. Furthermore, Li and Liu (2005) examines whether FDI affects the economic growth of the host economy. The study utilize data from 84 countries over the period 1970 to 1999 and employ single as well as simultaneous equation techniques in order to test the relationship between FDI and economic growth. In order to achieve the desired result endogeneity is tested using the Durbin-Wu-Hausman (DWH) test, and result show for the sample as whole endogeneity is not significant but when the period is split, 1985 to 1999 show a significant relationship between FDI and Gross Domestic Product (GDP). Further, Phillips Perron (PP) was employed to test for stationary of the variables and the variables were found to be stationary. The study suggests a strong complimentary connection between FDI and economic growth Using univariate and panel cointegration for 1970- 2007, Pradhan, (2009) study the relationship between foreign direct investment (FDI) and economic growth in the five ASEAN countries namely: Indonesia, Malaysia, Philippines, Singapore and Thailand results reports evidence of positive relationship between FDI and economic growth at both panel and individual level for the countries though with exemption of Indonesia, Malaysia and Philippines at individual level. However, when Granger causality test was done and results show evidence of bidirectional causality both at individual and panel level with exception of Malaysia. In a survey by Ilhan (2007) of over 50 empirical investigations on the relationship between FDI and economic growth, 40 of such studies have showed a positive relationship with only 2 reporting negative and the rest demonstrating no effect. These empirical evidences point to the fact that most FDI’s are associated to growth. Furthermore, Lumbila (2005) test a hypothesis whether FDI has an overall effect on economic growth and the results revealed a statistically significant difference that a 10 percent increase in FDI can bring about 0.34 percent growth. In another study, Feridun and Sissoko (2006) examines the relationship between FDI and economic growth for the period 1976 to 2002 in Singapore using Granger causality and vector auto regression (VAR). Their findings revealed a unidirectional causation running from FDI to economic growth. Apergis et al. (2004) used a panel data set covering 27 transitional economies over the period 1991 to 2000 to investigate the direction of the relationship between FDI and economic growth in transitional economies by applying what they call the “novel methodology of panel cointegration and causality” because of the belief that there is significant heterogeneity in cross country economic growth so as to allow them estimates presence heterogeneity in the parameters and dynamics across countries. Their findings suggest that FDI has a significant

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positive relationship with economic growth in the case where all countries are included in the sample. On the other hand, when sample were split into high income countries and countries with successful privatization and those without successful privatization programmes, and the findings are the same. In an effort to examine the performance, promotion and prospect of FDI in Africa Dupasquier and Osakwe (2006) point out that the poor performance of Africa in FDI attraction 1970s and 1980s were connected to trade restrictions and capital controls as part of a policy of import substitution industrialization aimed at protecting domestic industries and conserving scarce foreign exchange reserves imposed by many countries. The reason why foreign investors are hesitant to invest in Africa, despite its immense profitable opportunities is the relatively high degree of uncertainty in the region which exposes firms to significant risks. This uncertainty in the African region has manifested in political instability which are reflected in the incidence of wars, frequent military interventions, and religious and ethnic conflicts, other factors includes macroeconomic instability which is seen in incidence of currency crashes, double digit inflation, and excessive budget deficits and lack of transparent policies, GDP growth and market size, poor infrastructure, inhospitable regulatory environment, high protectionism, high dependence on commodities, increased competition, corruption and weak governance, poor and ineffective marketing strategy, are the most noticeable (Dupasquier, and Osakwe 2006). Cotton and Ramachandran (2001) share similar view by observing that sub Saharan African country’s low attraction of FDI inflow was largely due to trade barriers in private sector in the mid 1990’s. This they maintained as cited in Madavo and Sarbib (1997) that until lately, had cost the region about US$ 11 billion yearly, and slow application of macroeconomic reforms. 2. MATERIALS AND METHOD Data for this study was obtained from secondary sources, specvifically from the World Bank’s 2010 World Development Indicators (WDI) and United Nation Conference on Trade and Development (UNCTAD) statistics. This work covers thirty countries in Africa and Asia over the periods 1990 to 2009. The study chooses to cover only thirty countries owing to heterogeneity of the sampled countries. We employed probability sampling method in the form of simple random sampling technique to generate the sample using Statistical Package for Social Sciences (SPSS). In examining the relationships between Foreign Direct Investment and economic growth the literature on the FDI and growth nexus uses ∆GDP as a proxy for economic growth. Examples are Borensztain et.al (1998) and Seetanah and Khadaroo (2007). Therefore, our dependent variable, economic growth is measured as change per capita domestic product which is in line with study of Esso (2010). FDI inflow is measured as gross capital inflows into the country in US dollars (Borensztain et.al, 1998). In addition, openness to trade is measured as net export as percentage of GDP (Wheelan, 2002; Lamine, and Yang, 2010). This research study employed panel data approach which takes control of omitted variables that are persistent over time. There are basically three types of panel-data models namely, a pooled Ordinary Least Squire (OLS) regression, panel model with random effects and panel model with fixed effects although the slope of coefficients, intercept and error term are also used as basis for selection of diagnostic tools. The choice between Fixed Effect and Random Effect models will be influenced by result of Hausman test (1978) which is commonly used as a way of choosing between fixed and random effects (Gujarati and Sanjeetha, 2007).

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2.1 MODEL SPECIFICATION Yt= β0 + β1X1 FDI+ β2Zt + µ t GDPit= β0 + β1FDIit + β2OPENit + µ t Where: Growth = GDP Growth Rate, FDI = Foreign Direct Investment, OPEN = Openness, µ t = Error Term 3. RESULTS AND ANALYSES In Table 1, we analyzed the data by running ordinary least square, fixed and random effect regressions with a view to determining the model that is most adequate and appropriate for the analysis. Table 1: Regression Results for Selected Africa & Asian Countries Dependent Variable = GDP Growth Coefficient Estimates (and t-ratios) Independent OLS FE RE Variable Regression Regression Regression FDI Growth .0000764 .0000775 .0000764 (10.28)*** (10.40)*** (10.28)*** Export .0610639 .0560963 .0610639 growth (5.040)*** (4.56)*** (5.04)*** Constant 4.0869636 4.881814 4.869636 term (10.29)*** (22.46)*** (10.29)*** R2 0.2510 0.2513 0.2510 F 157.49*** 77.03*** 157.49*** Significant at 1% (***) Source: Computed with STATA 10.0 using data from World Bank & UNCTAD (2010)

Table 1 reports the panel regression results of the combined dataset for Africa and Asia. The Table shows three different regression results, which reveal that the parameter estimates of both FDI and export have a positive and significant relationship at one percent level on the dependent variable (real GDP growth). Like OLS, the fixed effect regression posits similar result with all the parameter estimates of FDI and export having positive and significant relationship with GDP. The F-value of 77.03 (OLS) in the analysis of variance shows that the model estimated by the regression procedure is adequate. This indicates that at least one coefficient is different from zero. The t– ratio for the estimated coefficients of FDI and export growth of 10.40 and 4.56 respectively are both significant at 1% indicating that the predictors (FDI and export growth) are significantly related to the dependent variable i.e. real GDP growth. In addition, the results of the RE portray the same behavior with FE with F-value of 157.49 and t-ratio of the explanatory variables as 10.28 and 5.04 respectively, the model proved to be adequate and the explanatory variables are positively associated with the dependent variable (real GDP). The R2 value for OLS is 0.25 pointing that 25% of the variation in real GDP is explained by the explanatory variables FDI and export growth. Similarly, FE analysis indicates that the predictors explain 25.13 % of the variance in growth rate is explained by the explanatory variables. In the same way, R2 value for random effect is 0.2510 showing that at least 25.10 % of the variance in GDP growth is explained by the predictors. Following the diagnostic test, result of Hausman specification selected RE model as more appropriate than FE model because the p value indicate the significance of the test at 5%

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level, leading to acceptance of alternative hypothesis that RE model is more appropriate than FE model. Table 2 displays the results of the panel regression analysis for selected countries in Africa. From the Table, the Hausman specification test upheld the null hypothesis suggesting that RE is not more appropriate relative to FE. Therefore, FE model is suitable for adoption in this analysis. Table 2: Regression Results for Selected African Countries Dependent Variable = GDP Growth Independent Variable

Coefficient Estimates (and t-ratios)

OLS Regression FE Regression RE Regression .0000724 .0000746 .0000724 (8.00) *** (8.17) *** (8.00) *** Export Growth .0867007 .0801675 .0867007 (4.17) *** (3.72) *** (4.17) *** Constant term 3.655852 3.817285 3.655852 (6.05)*** (10.63) *** (6.05) *** R2 0.3116 0.3119 0.3116 F 107.85*** 53.26*** 107.85*** Significant at 1% (***) Source: Computed with STATA 10.0 using data from World Bank & UNCTAD (2010) FDI Growth

From the Table 2 the parameter estimates for FDI growth demonstrates a positive and statistically significant relationship at 1% level. Implying that FDI growth has a positive relationship with GDP, a unit increase in FDI by .0000746 leads to GDP growth by .00746 percent. Also coefficient of export is significantly related to GDP at 1% level. As can be seen from the Table, the parameter estimate for export has positive relation with GDP. Furthermore, the R2 for the fixed effect is 0.312, suggesting that 31% of the variation in GDP could be ascribed to the joint influence of the predictors, that is, FDI and export growth. Also the RE regression shares identical results. As for the adequacy of model, it appeared adequate with a record of 53.26 implying that the model is adequate. As can be seen in Table 3, the Hausman specification test chooses RE that is null hypothesis is not more appropriate than the alternative. The parameter estimates for FDI and export are both positively related to GDP at 10% level. Table 3: Regression results for selected Asian countries Dependent Variable = GDP Growth Coefficient Estimates (and tratios) Independent Variable OLS FE RE Regression Regression Regression FDI Growth .0033466 .00031154 .0033466 (1.76) * (1.65) (1.76) * Export Growth .0355674 .0322402 .355674 (2.88) * (2.16) * (2.88) * Constant term 6.186266 6.057457 6.186266 (1078) *** (26.22) * (10.78) *** R2 0.0472 0.0472 0.0472 F 13.07 5.50*** 13.07*** Significant at 1% (***),10% (*) Source: Computed with STATA 10.0 using data from World Bank & UNCTAD (2010)

In addition, the R2 of 0.0472 in both FE and RE accounts that 47% of the variation in GDP is explained by joint influence of the independent variables. Thus 53% of the variation in GDP is accounted for by other variables that are not captured in the model. So also, the model proved to be adequate with 5.50 and 13.07 for fixed and random effects respectively.

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A cursory glance at Table 4 shows the summary of results obtained from the panel analysis of data. Columns 2-4 show results of Africa while columns 5-7 report that of Asia. Although most of the variables portray positive and significant statistics, there are slight variations in the figures recorded. For example, in Africa, an increase of .0000746 units in FDI lead growth of GDP by .00746 percent while in Asia an increase of .00031154 units of FDI leads .031 percent increase in GDP using the chosen model i.e. FE model. This by implication implies that FDI has more influence on economic growth in Asia than in Africa. Table 4: Comparison of results between Africa and Asia Independent Variables

Dependent variable: Real GDP Regression for Africa FE Model

RE Model

Selected Model

FDI Growth

Regression for Asia FE Model

RE Model

Selected Model P-value (-16.75) Fails to meet asymptotic assumptions

.0000746 .0000724 P-value .00031154 .0033466 (8.17) *** (8.00) *** (0.1946) (1.65) (1.76) * Fixed Effect Export .0801675 .0867007 .0322402 .355674 Selected Growth (3.72) *** (4.17) *** (2.16) * (2.88) * Constant 3.817285 3.655852 6.057457 6.186266 (10.63)*** (6.05) *** (26.22) *** (10.78)*** 0.3119 0.3116 0.0472 0.0472 R2 F 53.26*** 107.85*** 5.50*** 13.07*** Source: Computed with STATA 10.0 using data from World Bank & UNCTAD (2010)

In order to achieve the second objective of this study which is to investigate the direction of causality between the variables under study, Table 5 shows the causality test. After estimating the equations, we regress GDP on the lagged values of real GDP and lagged of FDI growth and vice versa. Results are summarized in Tables 5. Table 5: Causality Test between GDP growth rate and FDI growth (Africa and Asia) Coefficient Estimates (and t-ratios) Dependent Variable = GDP growth Dependent Variable= FDI growth lag_rGDP -.067381(-1.36) .5542297 (13.58) *** lag_nFDI 804.9383(3.25) *** -.000078(-9.31) *** Constant term -5512.014(-3.09) *** 2.206375(7.50) *** Significant at 1% (***) Source: Computed with STATA 10.0 using data from World Bank & UNCTAD (2010) Independent Variable

Table 5 shows the Granger causality analysis results for the first equation, results revealed a unidirectional causality. This is because the parameter estimates in the first equation indicates a significant result at 1% level. However when FDI growth was made the dependent variable the lagged estimate of GDP reports a negative and not statistically significant relation. Thus, we conclude that causality runs from FDI to GDP in case of the combine dataset i.e. Africa and Asia. Table 6 illustrates the results of causality test for Africa. The same procedure like the first test has been followed with a view to identifying the direction of causality. The results show the same evidence of unidirectional causation running from FDI to GDP like the combine dataset. In line with the same objective, the results in Table 7 indicated no evidence of

causality between the two variables. This suggests that causality neither runs from economic growth (GDP) to FDI nor from FDI to economic growth (GDP), in Asia.

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Table 6: Causality Test between GDP growth rate and FDI growth (Africa) Independent Variable lag_rGDP lag_nFDI Constant term

Coefficient Estimates (and t-ratios) Dependent Variable = GDP growth Dependent Variable= FDI growth -0.869633(-1.25) .5646795(9.84) *** 1046.588(2.62) *** .0000797(-7.95) *** -6868.715(-2.41) ** 1.656965(4.11) ***

Significant at 1% (***), 5% (**) Source: Computed with STATA 10.0 using data from World Bank & UNCTAD (2010)

Table 7: Causality Test between GDP growth rate FDI growth (Asia) Coefficient Estimates (and t-ratios) Dependent Variable = GDP growth Dependent Variable= FDI growth lag_rGDP -.114862(-1.66) * .4374776(7.35) *** lag_nFDI 2.947221(1.39) .0016353(0.76) Constant term -27.12441(1.75) * 3.535915(8.01) *** Significant at 1% (***), (*) 10% Source: Computed with STATA 10.0 using data from World Bank & UNCTAD (2010) Independent Variable

4. DISCUSSION On the basis of our findings, empirical results revealed a positive and statistically significant relationship between FDI and GDP Growth. Thus, we reject our null hypothesis and uphold the alternative, which states that there is relationship between FDI and economic growth in the selected African and Asian countries. This result supports our apriori expectation which is also in agreement with the findings of Ilhan (2007). It also concurs with the findings of Esso (2010) who report in his investigation of ten sub-Saharan African countries on the relationship between FDI and economic growth, a positive and significant growth in Angola, Cote d'Ivoire, Kenya, Liberia, Senegal and South Africa. However, in Liberia and South Africa it is growth that was found to have caused FDI. His investigation employed the Pesaran et al. (2001) approach to cointegration and the procedure for non-causality test of Toda and Yamamoto (1995). Furthermore, these results are consistent with the studies by Apergis et al. (2004), Li and Liu (2005), Lumbila (2005), Zhang (2006), and Seetanah, Khadaroo (2007) (Agrawal, and Khan (2011) who investigated on China, Japan, India, South Korea and Indonesia) they all reported that FDI exerts not only positive impact on economic growth but also statistically significant relationship. On the other hand, our findings does not concur with the result of Katerina et al. (2004) and Duasa (2007) who reports that FDI does not have any significant relationship with economic growth. The findings of our study produce mixed evidence of unidirectional causation running from FDI to GDP on one hand, and no evidence of causality on the other. Result of combined dataset for Africa and Asia indicates a unidirectional causality running from FDI to GDP. These findings corroborate with the findings of Feridun and Sissoko (2006), though their study only focused on Singapore as such the null hypothesis of no causation between FDI and GDP is rejected in the case of combined dataset. However, when data were split into Africa and Asia the same conclusion was maintained in Africa but in the case of Asia there was no evidence of causation. As a result, we do not reject the null hypothesis which states that there is no causality between FDI and GDP. This leads us to conclude that there is only a one-way causation running from FDI to GDP in Africa. One unexpected outcome of this study is the no causality link that is revealed in Asia which is contrary to our aprior expectation and it also contradicts the findings of Sridharan et al (2009) who in his study of BRICS countries reported a unidirectional link running from FDI to

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GDP in China and India. It is also not in line with the findings of Samad (2009) who investigates the direction of causal link between foreign direct investment (FDI) and economic growth measured in GDP in nineteen developing countries of South-East Asia and Latin America using Cointegration technique and report bidirectional causality in Singapore, Indonesia, India, Thailand and Pakistan. However, Bangladesh and Philippines revealed a unidirectional link which ran from GDP to FDI. 5. CONCLUSIONS AND RECOMMENDATIONS Based on the findings of this study, the following conclusions are drawn. Firstly, the parameter estimates for FDI and export are positive and significant at 1% level on the dependent variable (real GDP) growth for the combine dataset i.e. Africa and Asia. This suggest the need enhance more foreign direct investment and export as they are found to have promoted economic growth for our sampled countries. Secondly, we have also found FDI and export to have positive relationship with GDP even after disaggregating the dataset for Africa and Asia. This implies that an increase in FDI or export can increase GDP. Thirdly, causality runs from FDI to GDP for combined Africa and Asia. This implies that growth is accompanied by FDI as a result the policy implication of this finding is that FDI is a prerequisite for economic growth in Africa and Asia. Fourthly, we also found similar evidence of unidirectional causality in Africa which runs from FDI to GDP. Finally, there is no evidence of causality between FDI and GDP in Asia and by implication, this finding suggest that neither FDI nor GDP causes each another. Going by the findings and conclusions drawn from this study, the following recommendations are suggested. Firstly, our findings indicate that FDI promote economic growth in all the three groups of our analysis (i.e. aggregated and disaggregated analysis). In other words, an increase in FDI leads to an increase in economic growth in these countries. As such, we suggest that policies such as opening up of the economies by engaging in more bilateral and multilateral trade agreements, improving the quality of infrastructure by way of channeling more resources to its development especially in underdeveloped economies among the selected countries, privatization policy which is also found in to have positive relationship with economic growth (Apergis et.al, 2004), and demonstrating more political will in the fight against corruption so as to instill more confidence on foreign investors. These policies may enhance the attraction of FDI thereby increasing economic growth. Secondly, our findings do not show evidence of bidirectional causality. We found FDI running GDP which shows a one way link, as such, it is recommended that policies that promote economic growth should be given adequate attention in order increase economic growth so as to attract FDI, this is because it is established in the literature that most factors that increase economic growth also attract FDI. Thirdly, it is observed from the trend of FDI in the literature that some countries attract higher FDI than others. It is suggested that those countries with low levels of FDI need to improve their business environment by ensuring that administrative procedure, legal and judiciary system are improved so as to ensure property right, fight corruption and respect rule of law and due processes. Finally, we recommend that generalizing the findings of this study should be done with caution. This is because these findings are for a group of selected countries which was done randomly using SPSS. These countries possess different historical and macroeconomic backgrounds, policy regimes and growth patterns, as such generalizing the results should be handled with caution. Against the findings of this study further studies should focus on analyzing country specific cases so as to allow for specific policy recommendations and employ more robust econometric models.

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Odusola, A. F. (2003):“Foreign Investment Policy and Development of the Nigerian Economy.” Nigerian Economy, Structure, Growth and Development (Iyoha M. A. and Itsede C. O. eds.). pp. 223-244. Petrakos G, Arvanitidis, P. and Pavleas, S. (2007): “Determinants of Economic Growth: The Expert’s View.” Working Paper No. 20, Dynamic Regions in a Knowledge Driven Global Economy (DYNREG) Lessons and Policy Implications for the EU Pradhan, R. P. (2009): “The FDI- Led- Growth Hypothesis in ASEAN- 5 Countries: Evidence from Cointegrated Panel Analysis.” International Journal of Business and Management Vol. 4, No. 12 Rabiei. M. and Masoudi Z. G. (2012): “Foreign Direct Investment and Economic Growth in Eight Islamic Developing Countries.” European Journal of Scientific Research Vol.68 No.4, pp.487-493 Samad, A. (2009): “Does FDI Cause Economic Growth? Evidence from South-East Asia and Latin America” Woodbury School of Business Working Paper 1-09. Seetanah, B. and Khadaroo, A. J. (2007): “Foreign Direct Investment and Growth: New Evidences from Sub-Saharan African countries.” Sridharan, P., Vijayakumar N. and Chandra S. K. (2009): “Causal Relationship between Foreign Direct Investment and Growth: Evidence from BRICS Countries.” International business research Vol. 2, No. 4. Todaro, M. P. and Smith S. C. (2005): “Economic Development.” Eight Edition Pearson Education Zhang, K. H. (2006). “Foreign Direct Investment and Economic Growth in China: A Panel Data Study for 1992-2004.” A Paper Presented at a Conference of WTO, China and Asian Economies Held at University of International Business and Economics (UIBE). Beijing, China 24- 26 June, 2006

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