The Effect of Government Size, Foreign Direct Investment, On Economic Growth in Sub-Saharan Africa

Abstract

It has long been argued that a country cannot develop without government. However, researchers have diverse opinions with regards to the impact of government size on economic growth. Whiles some researchers (Ahuja, 2013; Zareen & Qayyum, 2014) argue that large government size is most likely to enhance economic growth, other researchers (Armey, 1995; Vedder & Gallaway, 1998) believe that higher government expenditure has a tendency to harm economic growth. The third group of researchers believes that the full presence or total absence of government has its own consequences. The contributions of Foreign Direct Investment (FDI) in an economy, especially, emerging economies cannot be overemphasised. As argued by some scholars (Odozi 1995; Makki & Somwura, 2004) FDI is a key driver of an economy. FDI is a significant source of development financing which contributes extensively to growth. The effect of government size and FDI on economic growth has, however, received less attention in sub-Saharan African (SSA) countries. This study empirically explores the impact of government size and FDI on economic growth in SSA. Data for this study was sourced from World development indicators, for 42 SSA countries covering the period 2000-2016. The model for the study was estimated using the panel regression techniques. The study considered unobserved country heterogeneity and corrected for heteroscedasticity and autocorrelation. The study found that government size and FDI both have a positive significant effect on the economic growth of SSA countries. The study, therefore, recommends that governments of SSA