Impact of Foreign Direct Investment on Household Consumption Expenditure

Abstract

Many developing countries are striving to attract foreign direct investment into their country of which Ghana is no exception. They believe foreign direct investment inflows can boost domestic consumption expenditure and eventually aid in the alleviation of poverty in their respective countries. This key objective of this study is to investigates the impact of foreign direct invest (FDI) inflow on household consumption expenditure in Ghana, the research used secondary data from the world development indicators, ranging from 1975 through to 2016. Foreign direct invest, trade openness, human capital, were some of the independent variable used against household consumption been the dependent variable. The model was estimated using the Ordinary Least Square Estimation Technique. The study result reveals that, foreign direct investment has an adverse influence on household consumption in the country, reason been most foreign direct investment are directed towards the extractive industries and the mining of natural resources, proceeds from such venture are usually repatriated back to the foreign country, with very little done to enhance domestic consumption, the study also reveals that electricity consumption which served as proxy for expenditure and human capital development has a positive influence on household consumption expenditure. The result of the study recommends that the state should redirect juicy policies and incentives given to foreign direct investors to development of human capital and better infrastructure to domestic investor since this is likely to have a significant positive effect on household consumption expenditure relative to foreign direct investment.