Electronic Theses and Dissertation

Foreign direct investment is considered to be one of the catalysts that enhance economic growth in the Sub-Saharan African region, which had been a focus for many academic researchers and scholars of interest. However, the region has not yet adopted policies that can lure a pattern of foreign direct investment to boost economic growth as various researchers had combined their efforts to take upon the task to find solutions, yet still yielded conflicting results. As a result, this study fills the gap to analyse the nexus between foreign direct investment and economic growth in fifteen West Sub-Saharan Africa Countries from 1990 to 2020, taking into account the effect of both interest rate and exchange rate on their relationship. Furthermore, several tests were employed such as unit root test, optimal lag length selection test, cointegration test, granger causality test, impulse response test, forecast variance error decomposition test. Although, the main model is VECM. OLS method and a few diagnostic tests were employed to ensure the robustness of the findings. The result of this study exhibits that foreign direct investment help enhances economic growth in the long run despite its negative impact in the short-run. The effect of interest rate on both foreign direct investment and economic growth is not significant, but varies for the exchange rate, as it indicates a positive and significant effect on the economic growth, however, negative and insignificant on foreign direct investment. Therefore, policymakers should adopt policies that will support foreign direct investment for the long term to enhance economic growth, reduce the interest rate and mitigate the effect of exchange rate volatility by establishing single currency usage in the region as a whole or use flexible exchange rate. Keywords: Foreign direct investment, economic growth, relationship, West Sub-Saharan African countries, VECM