Macroeconomic factors and foreign direct investment in Ghana

Abstract

The thesis examined the effect of macroeconomic factors on foreign direct investment inflows to Ghana. It specifically examines a few selected macroeconomic variables that have either a direct or indirect relationship with foreign direct investment in Ghana. The principal objective of this study was to empirically analyse the effect of macroeconomic variables on foreign direct investment in Ghana between 1993 to 2013. Secondary data are used in this study. Time series data for the period of 1993 to 2013 on macroeconomic variables such as gross domestic product, inflation, exchange rate, interest rate, trade openness, natural resources, foreign debt, and fiscal deficit are sourced from Ghana Statistical Service. All the variables considered were integrated at first order as a result the Johansen’s cointegration approach was used and the result showed that the variables were not co-integrated. Therefore the vector autoregressive model was estimated. The result of the study confirmed that inflation, interest rate, foreign exchange, foreign debt and fiscal deficit were negatively associated with foreign direct investment while GDP, trade openness and natural resource of Ghana are positively related to foreign direct investment. Based on the findings of this study, it is recommended that the Government of Ghana must implement policies that will encourage foreign direct investment, moderate exchange rate depreciation, and increasing trade openness.