Determinants and Effects of Foreign Direct Investment in Ghana – Review of Literature

Abstract

This paper reviewed papers published on foreign direct investment (FDI) on Ghana to determine the factors that gravitate FDI into Ghana, the effects of FDI on Ghana and identify the gaps that exist for further research. The literature used excluded long essays and thesis as well as working papers that have not been published in a journal. The resulting literature retrieved numbered 27, while 23 were subjected to detailed review. The review revealed a publication bias towards inward FDI, publishing in journals outside Ghana and a preponderance of use of time series data. Results of recent data tended to produce more statistically significant results than previous and shorter span data. Factors that determined inflow of FDI into Ghana are exchange rate, exchange rate volatility, real exchange rate, previous level of FDI, inflation, size of the economy, democracy and trade. FDI inflow benefited Ghana’s economy through its effect on agricultural exports, firm productivity, industrial output, stock market and ultimately GDP and GDP growth. However, agricultural FDI negatively impacted food security. Studies on directional spillover effects of FDI in Ghana are non-existent and deserve investigation among other areas.

Key words: foreign direct investment, Ghana, determinants, effects, review.