Dynamics of Foreign Direct Investment and Economic Growth in SADC Countries: A Panel Data Analysis

Abstract

This study investigates the long run and short run dynamic impact of foreign direct investment (FDI) on economic growth in SADC region. Using the Chudik and Pesaran (2013) Panel Autoregressive Distributed Lag (P-ARDL) model and an annual data spanning 1970-2023 across SADC countries, the study finds an evidence of a long term impact of FDI on economic growth. It is further observed that despite various short-term impacts, GDP per capita and human capital have a significant long-term effects on economic growth in the region. While both FDI and GDP per capital have a strong positive impact, human capital has a negative impact on economic growth in the region. These results contribute to understanding the roles and relationships of human capital, GDP per capita and FDI in addressing SADC's development challenges. As a policy recommendation, SADC’s policymakers should prioritize FDI attraction, human capital reform, job creation, infrastructure development, and institutional strengthening in order to achieve a sustainable economic growth.