Abstract:
This article investigates the effect of infrastructure and foreign direct investment (FDI) on economic
growth in Sub-Saharan Africa (SSA) using panel data on 46 countries covering the period 2003–
2017. The data were analyzed using fixed effects, random effects, and system generalized method of
moments (GMM) estimation techniques. Based on the system GMM estimates, the results indicate that
a 1 percent improvement in electricity and transport infrastructure induces growth by 0.09 percent
and 0.06 percent, respectively. Additionally, FDI proved to be growth enhancing only when interacted
with infrastructure. The interactive effect of FDI and infrastructure improves economic growth by
0.016 percent. The results suggest that public provision of economic infrastructure reduces the cost
of production for multinational enterprises, thus providing an incentive to increase investment in the
domestic economy to sustain economic growth. The results also suggest that the impact of FDI on
economic growth is maximized when some level of economic infrastructure is available. Our findings
thus provide ample justification on the need for a significant government investment in infrastructure
to provide a less costly business environment for both local and multinational enterprises to improve
economic growth.
