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Africa Region Working Paper Series No. 80 What Makes FDI Work? Abstract Apanel analysis of the effects of foreign direct investment (FDI) on economic growth is conducted using data from 47 African countries over the last two decades (1980–2000). Overall, the analysis shows that FDI exerts a positive impact on growth in Africa. Also, factors such as trained human capital and an attractive investment climate stemming from a developed infrastructure, lower country risk and stable macro environment in the host countries, enhance the impact of FDI on growth. These results confirm the hypothesis that foreign aid as well as domestic and foreign investment are effective and growth enhancing only in a good policy environment. But, because Africa receives only a small portion of FDI, foreign aid and domestic investment still account for a greater effect on growth. Surprisingly, regression results reveal that corruption does not matter in the case of FDI:countries where corruption is perceived to be high still benefit from a positive impact of FDI on growth.Full
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