Foreign Direct Investment and Productivity Growth of Ghanaian Manufacturing Firms
Keywords:
Foreign direct investment (FDI), Ghana, Labour productivity, Manufacturing firms.Abstract
This paper examines foreign direct investment (FDI) effect on the productivity of local manufacturing firms in Ghana. By using a firm level panel data of eight subsectors in the Ghanaian manufacturing industry covering the period, 1992 - 2003, the paper examines labour productivity of local firms by following the methodology of Kohpaiboon (2005) which begins with the Cobb Douglas production function. Appropriate diagnostics are carried out for the adoption of the models for the empirical estimation. The regression results revealed a significant FDI effect on local manufacturing firms’ productivity. It was found that there is a direct link between FDI and productivity of local manufacturing firms in Ghana. All the key variables of the productivity model, i.e. FDI, capital stock, technological spillover and quality of labour had positive effect on local manufacturing firms’ productivity. This means that with more FDI inflows, local firms are able to have the needed funds to invest in technology to improve upon productivity, more funds to invest in labour for them to acquire the needed skills to improve upon productivity and more funds to increase their capital to improve upon productivity. All the control variables included in the regression models, i.e. firm age and firm size, proved to have significant effects on local manufacturing firms’ productivity. This means that larger firms in the Ghanaian manufacturing industry are likely to perform better than smaller firms. Firms which have been in existence for long (older firms) also have the potential of performing better than firms which have not be in existence for long (newer firms). This is because firms gain experience as they stay for long in the manufacturing industry. They are able to learn from their mistakes and perform well. The findings of this study have relevant implications for government economic policy.
References
. J. Abor. “Foreign direct investment and firm productivity: evidence from firm-level data”, Global Business and Economics Review, Vol. 12, No.4, pp. 267–285, 2010.
. E.J. Borensztein, J. De Gregorio and J.W. Lee. “How Does Foreign Direct Investment Affect Economic Growth?”, Journal of International Economics, Vol.45, No.1, pp. 115-135, 1998.
. L.R. De Mello. “Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data”, Oxford Economic Papers Vol. 51, No. 1, pp.133-51, 1999.
. A. Kohpaiboon. “Vertical and Horizontal FDI Technology Spillovers: Evidence from Thai Manufacturing,” ERIA Discussion Paper Series, Aug. 2009.
. L. Colen, M. Maertens and J. Swinnen. "Foreign Direct Investment as an engine for economic growth and human development: A review of the arguments and empirical evidence," Working paper prepared for the IAP P6/06 Project, Working Package FDI-1, 2008.
. P. Nunnenkamp. “To what extent can foreign direct investment help achieve international development goals?”, The World Economy, Vol. 27, No.5, pp. 657-677, 2004.
. E. Asiedu. “On the determinants of foreign direct investment to developing countries: is Africa different? ”, World development, Vol.30, No.1, pp.107-119, 2002.
. IMF. “Foreign Direct Investment Report on Emerging Economies”, 2008.
. UNCTAD. “Investment Policy Review Ghana”, United Nations Conference on Trade and Development, New York and Geneva, 2003.
. IMF. “Foreign Direct Investment Trends and Statistics”, 2003.
. UNCTAD. “Transnational Corporations and Export Competitiveness”, World Investment Report, New York, United States, 2002.
. UNCTAD. “World Investment Report”, 2005.
. UNCTAD. “World Investment Report”, 2009.
. UNCTAD. “World Investment Report”, 2010.
. UNCTAD. “World Investment Report”, 2012.
. UNCTAD. “World Investment Report”, 2013.
. UNCTAD. “World Investment Report”. Reforming International Investment Governance, Geneva Switzerland, 2015.
. UNCTAD. “World Investment Report”, 2017.
. UNCTAD. “World Investment Report”, 2018
. Business Monitor International. ‘‘Ghana Business Forecast Report’’, 4 edition, 2013.
. Ghana Investment Promotion Centre. ‘‘Quarterly Investment Report’’, 2013.
. Ghana Investment Promotion Centre. ‘‘Quarterly Investment Report’’, 2018.
. P.J. Buckley and M.C. Casson. The Future of the Multinational Enterprise, London: Homes & Meier, 1976.
. J.F. Hennart. A theory of multinational enterprise, Michigan: University of Michigan Press, 1982.
. M. Casson. Alternatives to the Multinational Enterprise, London: Macmillan, 1979.
. R.H. Coase. “The nature of the firm”, Economica, (New series), No. 4, pp. 387-405, 1937.
. S.H. Hymer. “The international operations of national firms: a study of direct foreign investment.” Ph.D., MIT, Subsequently published by Cambridge, MA: MIT Press, 1976.
. J.H. Dunning. “The determinants of international production”, Oxford Economic Papers 25, 1973.
. F.T. Knickerbocker. Oligopolistic Reaction and Multinational Enterprise. Boston: Harvard Business School Press, 1973.
. R. Vernon. “International Investment and International Trade in the Product Cycle”. Quarterly Journal of Economics. Cambridge. pp. 191, 1966.
. J.H. Dunning. “Toward an eclectic theory of international production: Some empirical tests”, Journal of International Business Studies, issue 11, 1980.
. J.H. Dunning. “The Eclectic Paradigm of International Production: A restatement and some possible extensions”, Journal of International Business Studies, issue 19 (Spring), 1988.
. A. Smith. “The Wealth of Nations edited by R.H. Campbell and A.S. Skinner”. The Glasgow edition of the Works and Correspondence of Adam Smith, Vol. 2b, pp. 678, 1976.
. K. Coutts and W. Godley. “Does Britain’s balance of payments matter anymore?” in The Economic Legacy 1979-1992, J. Michie (Ed.), London: Academic Press, 1992, pp. 60-67.
. J.S.L. McCombie and A. Thirlwall. “The re-emergence of the balance of payments constraint”, in The Economic Legacy, 1979-1982, J. Michie (Ed.), London: Academic Press, 1992, pp. 68-74.
. D. Marin. “Is the Export-Led Growth Hypothesis Valid for Industrialized Countries?”, CEPR Discussion Paper No. 362, Centre for Economic Policy, 1992.
. P. Temple. “Overview: understanding Britain’s economic performance: the role of international trade”, in Buxton, A.P. Chapman and P. Temple (Eds), Routledge, London: Britain’s Economic Performance, 1994, pp. 31-56.
. S.H. Hymer. “The Efficiency (Contradictions) of Multinational Corporations”, American Economic Review Papers and Proceedings, Vol. 60, No.1, pp. 441-448, 1970.
. R.J. Carbaugh. International Economics, Ohio: South-Western College Publishing, 2000.
. R. Mundell. “International Trade and Factor Mobility”. American Economic Review, Vol.47, No.1, pp. 321-335, 1957.
. C. Stoneman. “Foreign Capital and Economic Growth”. World Development. Vol.3, No.1, pp. 11-26, 1975.
. D. O’Hearn. “TNCs, intervening mechanisms and economic growth in Ireland: A longitudinal test and extension of Bomschier model”. World Development, Mar. 1990.
. T. Itagaki. “International Trade and Factor Mobility”, American Economic Review, Vol.47, No.1, pp. 321-335, 1981.
. D.O. Cushman. “Real Exchange Rate Risk, Expectations and the Level of Direct Investment”, Review of Economics and Statistics, Vol.67, No.2, pp. 297-308, 1985.
. J.P. Buckley, J. Clegg and C. Wang. “The impact of inward FDI on the performance of China’s manufacturing firms”. Journal of International Business Studies, Vol.33, No.4, pp. 637-655, 2002.
. R. Feenstra and L. Markusen. “Accounting for Growth with New Inputs”, International Economic Review. pp. 429-447, 1994.
. C. Guilleermo, L. Leonardo and R. Carmen. “Inflow of Capital to developing Countries in the 1990s”, The Journal of Economic Perspective. Vol 10. Issue 2. Spring, pp. 123-139, 1996.
. L.R. De Mello. “Foreign Direct Investment in Developing Countries: A Selective Survey”, The Journal of Development Studies, Vol. 34, No.1, pp. 1-34, 1997.
. J. Bitzer and H. Görg. "Foreign Direct Investment, Competition and Industry Performance," The World Economy, Wiley Blackwell, Vol. 32. No.2, pp. 221-233, 2009.
. H. Thiam. “Foreign Direct Investment and Productivity: Evidence from the East Asian Economies.” Staff Working Paper 03, United Nations Industrial, 2006.
. J. Abor and S. Harvey. “Foreign Direct Investment and Employment: Host Country Experienc”, Macroeconomics and Finance in Emerging Market Economies, Vol.1, No.2, pp. 213–225, 2008.
. M. Blomström. “Foreign Investment and Productive Efficiency: The Case of Mexico”, Journal of Industrial Economics, Vol.35, No.1, pp. 97–110, 1986.
. M. Blomström and H. Persson. “Foreign Investment and Spillover Efficiency in an Underdeveloped Economy: Evidence from Mexican Manufacturing Industry”, World Development, Vol.11, No.1, pp. 493–501, 1983.
. H. Görg and E. Strobl. “Multinational Companies and Productivity Spillovers: A Meta-Analysis”, Economic Journal, Vol.111, pp. F723–F739.
. Schoors, Koen, and Van der Tol, Batoldus. “The Productivity Effect of Foreign Onwnership on Domestic Firms in Hungary”. EEA Venice Conference Paper, 2002.
. OECD. “FDI, maximizing benefits, minimizing costs”, 2002.
. P. Garibaldi, N. Mora, R. Sahay and J. Zettelmeyer. “What Moves Capital to Transition Economies?”, IMF Staff Papers, 48, International Monetary Fund, Washington D.C, 2001.
. S. Lall. “Less Developed Countries and Private Foreign Investment: A Review Article”, World Development, Vol 2. No.4, pp. 43-48, 1974.
. R. Findlay. “Relative Backwardness, Direct Foreign Investment, and Transfer of Technology: A Simple Dynamic Model”, Quarterly Journal of Economics, Vo. 92, No. 1. pp. 1- 16, 1978.
. P. Romer. “Endogenous technological change”. Journal of Political Economy, Vol. 98, No.1. pp. 71–103, 1990.
. P. Loungani and A. Razin. “How Beneficial is Foreign Direct Investment for Developing Countries?”, Finance and Development, Vol. 38, No.2, pp. 1-7, 2001.
. J. Abor, C.K.D. Adjasi and M. Hayford, “How Does Foreign Direct Investment affects the Export Decisions of Firms in Ghana?” African Development Review. Vol. 20, No. 3, pp. 446-465, 2008.
. B.J. Aitken, G.H. Hanson, and A.E. Harrison. “Spillovers, Foreign Investment and Export Behaviour”, Journal of International Economics, Vol. 43, No.1, pp. 103–32, 1997.
. D. Greenaway, N. Sousa and K. Wakelin. “Do Domestic Firms Learn to Export from Multinationals?” Research Paper 2001/11, Leverhulme Centre for Research on Globalisation and Economic Policy, University of Nottingham, Nov. 2001.
. M. Blomstrom and A. Kokko (1997). “The Impact of Foreign Investment on Host Countries: a Review of the Evidence,” World Bank Research Paper, 1745, 1997.
. Y.W. Cheung and G. Pascaul. “Market structure, Technology spillover, and persistence in productivity Differentials,” International Journal of Applied Economics.
. P. Aghion, C. Harrison and J. Vickers. “Competition and Growth with Step-by-Step Innovation: An Example,” European Economic Review, Vol.41, No. (3-4), pp. 771-782, 1997b.
. A. Kohpaiboon. “Foreign Direct Investment and Technology Spillover: A Cross-Industry Analysis of Thai Manufacturing,” World Development, Vol.34, No.3, pp. 541–556, 2005.
. M. Carkovic and R. Levine. “Does Foreign Direct Investment Accelerate Economic Growth?”, Eds:Theodore H. Moran, Edward M. Graham and Magnus Blomström, Washington, DC: Institute for International Economics, 2005, pp. 195-220.
. L. Alfaro, A. Chanda, S. Kalemli-Ozcan and S. Sayek. “FDI and Economic Growth; The Role of Local Financial Markets”, Journal of International Economics Vol.64, No.1, pp. 113-134, 2004.
. J.B. Durham. “Absorptive Capacity and the Effects of Foreign Direct Investment and Equity Foreign Portfolio Investment on Economic Growth”. European Economic Review, Vol.48, No.1, pp. 285-306, 2004.
. N. Hermes and R. Lensink. “Foreign Direct Investment, Financial Development and Economic Growth”. The Journal of Development Studies, Vol.40, No.1, pp. 142-163, 2003.
. B. Xu. “Multinational enterprises, technology diffusion, and host country productivity growth”, Journal of Development Economics, Vol. 62, No. 2, pp. 477-493, 2000.
. V.N. Balasubramanyam. “The Multilateral Agreement on Investment (MAI) and Foreign Direct Investment in Developing Countries’’, Discussion Paper 16, Lancaster University, 1998.
. V.N. Balasubramanyam, M. Salisu and D. Sapsford. “Foreign Direct Investment and Growth in EP and IS Countries”, Economic Journal, Vol.106, No.434, pp. 92-105, 1996.
. J.N. Bhagwati. “Anatomy and consequences of exchange control regimes: Studies in International Economic Relations’’, National Bureau of Economic Research, Vol. I. No.10, New York, 1978.
. M. Bengoa and B. Sanchez-Robles. “Foreign direct investment, economic freedom, and growth: New evidence from Latin America”, European Journal of Political Economy, Vol.19, No.3, pp. 529–545, 2003.
. A. Johnson. “Host country effects of foreign direct investment: The case of developing and transition economies”. JIBS Dissertation Series No. 031, Andreas Johnson and Jönköping International Business School ISSN 1403-0470 ISBN 91-89164-64-4, 2005.
. M. Blomstrom, R.E. Lipsey and M. Zejan. “What Explains Growth in Developing countries?” NBER Discussion Paper, 1994.
. X. Li and X. Liu. “Foreign Direct Investment and Economic Growth: an increasingly endogenous relationship”, World Development, Vol.33, No.1, pp. 393-407, 2005.
. K.H. Zhang. “How does foreign direct investment affect economic growth in China?” Economics of Transition, Vol. 9, No.3, pp. 679-693, 2001.
. D. Ray. Development Economics. Princeton: Princeton University Press, 1998.
. A. Bende-Nabende and J.L. Ford. “FDI, policy adjustment and endogenous growth: Multiplier effects from a small dynamic model for Taiwan 1959–1995”. World Development, Vol.26, No.7, pp. 1315–1330.
. P. Romer. “Increasing returns and long run growth”. Journal of Political Economy, Vol.94, No.1, pp. 1002–1038.
. R.E.J. Lucas. “On the mechanics of economic development”. Journal of Monetary Economics, Vol. 22 No.1, pp. 3–42. 1988.
. A. Waldkirch and A. Ofosu. “Foreign Presence, Spillovers, and Productivity: Evidence from Ghana,” Munich Personal RePEc Archive, 2008.
. Y. Tandon. “Fallacies about the Theory of FDIs: Its Ideological and Methodological Pitfalls”, presented at the 4th Conference of International Economists, Havana, Cuba, on the Theme of ―GLOBALIZATION AND DEVELOPMENT PROBLEMS, 2002.
. E.F Oteng-Abayie and J.M. Frimpong. “Bounds Testing Approach to Cointegration: An Examination of Foreign Direct Investment Trade and Growth Relationships.” American Journal of Applied Sciences, Vol.3, No.1, pp. 2079-2085, 2006.
. B.J. Aitken and A.E. Harrison. “Do Domestic Firms Benefit from Direct Foreign Investment?” Evidence from Venezuela, American Economic Review, Vol. 89, No.1, pp. 605-618.
. B.J. Aitken, A.E. Harrison and R.E. Lipsey. “Wages and Foreign Ownership. A Comparative Study of Mexico, Venezuela, and the United States”, Journal of International Economics, Vol. 40, No.1, pp. 345-371.
. A. Harrison. “Determinants and Consequences of Foreign Investment in three Developing Countries”, in Industrial Revolution in Developing Countries: Micro Patterns of Turnover, Productivity and Market Structure, M. Roberts, J. Tybout (eds), Oxford: Oxford University Press, 1996.
. A. Sumner. “Is foreign direct investment good for the poor?” A review and stock-take, Development in Practice, Vol.15, No. (3-4), pp. 269-285, 2005.
. R. Hausmann and E. Fernández-Arias. “Foreign Direct Investment: Good Cholesterol?” Working Paper 417, Inter-American Development Bank, pp. 27.
. F. Teal. “A note on the Data for Ghanaian Manufacturing Firms: 1991-1997”, Centre for the Study of African Economies, University of Oxford, 2002
. Chuang and Hsu. “FDI, trade, and spillover efficiency: evidence from China’s manufacturing sector,” Applied Economics, Vol.36, No.1, pp. 1103–1115, 2004.
. F. Teal. “Manufacturing Firms in Ghana: Comparing the 1987 and 2003 Censuses”. Centre for the Study of African Economies, University of Oxford, 2000.
Downloads
Published
How to Cite
Issue
Section
License
Authors who submit papers with this journal agree to the following terms.
