Examining the Relationship Between Foreign Direct Investment and Export Performance: A Panel Data Approach

Abstract

Foreign Direct Investment (FDI) significantly strengthens the export capacity of host countries by providing financial resources, facilitating technology transfer, and enhancing workforce skills and managerial capabilities. Given the importance of FDI in boosting export capacity, governments often offer incentives to attract FDI, particularly in developing countries. Recently, many developing economies have received increased FDI inflows. The relevant policy question is whether these incentives are truly effective. One way to assess this is by examining the impact of FDI on key economic performance indicators in host countries. This study investigates the interrelationship between FDI inflows and export performance in four Sub-Saharan African countries using an econometric method of panel regression. It also includes control variables such as trade openness, gross domestic product (GDP), and exchange rates. The empirical results indicate that FDI inflows have a positive and significant effect on export performance. Moreover, trade openness and economic growth also positively influence exports, while exchange rates have a negative impact.These findings have important implications for policymakers, highlighting the need to attract FDI to strengthen export capabilities. Additionally, promoting trade openness and economic growth is crucial for enhancing export performance, while effectively managing exchange rate dynamics is necessary to mitigate their negative impact on exports.

Keywords: Foreign Direct Investment, Export Performance

DOI: 10.7176/JESD/15-9-04

Publication date: November 30th 2024