Abstract:
We investigated the role played by foreign direct investment in sustainable human development achievement in Africa. We examined the impact of FDI on Human Development Index (HDI) and on each of its three dimensions (i.e. health, education, and income) for 52 African countries over 28 years from 1990 to 2017. The Seemingly Unrelated Regression (SUR) estimation was employed to estimate four models jointly as a system of equations to measure the contribution of foreign direct investment to human development achievements on the African continent. We ascertained that FDI has a positive impact on Income Index and a negative impact on other human development indicators. We also found that countries with developed financial markets turn to benefit more from FDI than those with less developed financial markets. Thus, the financial sector is a channel through which FDI passes to better affect all the dimensions of human development. GDP per capita, Domestic Investment (Gross capital formation), and openness to trade were also found to positively influence HD and its dimensions in Africa. Empirical evidence was also established that democratic regimes are favourable environment for the achievement of human development in Africa. Finally, our findings held that countries with high degree of freedom performed better in terms of HD achievements than those with low degree of freedom. We concluded that African countries need targeted economic and social policies as well as developed financial markets to be able to reap the benefits of FDIs in terms of the achievements of sustainable human development.
Keywords and Terms: Financial Development, Foreign Direct Investment, Seemingly Unrelated Regression, Sustainable Human Development.