The impact of political liberalisation on foreign direct investment inflows in Ghana, 1975-2013
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May, 2016
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Abstract
The study investigates the impact of political liberalisation on foreign direct investment inflows in Ghana for the period 1975-2013. The study adopts the autoregressive distributed lag bounds technique to cointegration to examine the possible long run relationship among the investigated variables and finds long run relationship. The empirical results show that political liberalisation has positive and significant impact on foreign direct investment inflows in both the long and the short run. It therefore provides evidence in support of the validity of the location hypothesis in the Ghanaian context. In the long run, economic growth and natural resources have positive and significant impacts on foreign direct investment inflows. Trade openness, infrastructural development and inflation have negative impacts on foreign direct investment inflows. Whereas trade openness’ impact is insignificant, those of infrastructural development and inflation are significant. In the short run, economic growth, trade openness and natural resources have positive and significant impacts on foreign direct investment inflows. However, infrastructural development and inflation have negative impacts. Whilst inflation is significant that of infrastructural development is insignificant. The forecast error variance decomposition of foreign direct investment inflows results indicated that within the ten year period, variations in foreign direct investment inflows were high as a result of its own shocks and in terms of innovations in the explanatory variables infrastructural development contributed highest. This is then followed sequentially by natural resources, trade openness, economic growth, inflation and political liberalisation over the specified time period. The study recommends to policy makers to deepen Ghana’s current democratic dispensation so to make her a preferred destination for foreign direct investment inflows.
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A thesis submitted to the Department of Economics, Kwame Nkrumah University of Science and Technology, in partial fulfillment of the requirements for the degree of Master of Philosophy in Economics,