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The nexus between FDI and Total Factor Productivity Growth in Sub Saharan Africa

Senbeta, Sisay (2008): The nexus between FDI and Total Factor Productivity Growth in Sub Saharan Africa.

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Abstract

In this study we construct an alternative analytical framework aimed at investigating the nexus between FDI inflow and productivity growth within the externalities type endogenous growth theory. The competitive equilibrium of our model indicates that a technological spillover from FDI has positive effect on the total factor productivity of the host economy. To empirically test the model, we employed panel data for 22 Sub-Saharan African countries covering the period 1970-2000. We estimated the fixed effect model and the dynamic panel model and the results from both models, inline with the solution of analytical model and empirical results of some of the recent studies, show that FDI inflow has negative short-term effects and positive long-run effects on total factor productivity.

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