The Role of Foreign Direct Investment in Accelerating Economic Growth in Sub-Saharan Africa

Abstract

Foreign Direct Investment (FDI) has long been considered a crucial driver of economic growth, particularly for developing regions such as Sub-Saharan Africa (SSA). This study examines the empirical role of FDI in accelerating growth across the region, with a focus on its impact on capital formation, technology transfer, and job creation. Drawing upon panel data from selected SSA economies between 2005 and 2020, the findings indicate that FDI inflows positively correlate with GDP growth, though the extent of the impact varies by sectoral distribution, institutional quality, and absorptive capacity of host countries.The analysis shows that economies with stronger governance frameworks and stable macroeconomic environments tend to leverage FDI more effectively, translating foreign capital into infrastructure development, industrial expansion, and productivity growth. However, challenges such as political instability, inadequate human capital, and weak financial systems continue to limit the full benefits of FDI. The study further highlights that FDI concentrated in extractive industries yields limited spillover benefits compared to investments in manufacturing and services.Policy recommendations emphasize the need for governments to strengthen institutional frameworks, invest in human capital, diversify their economies, and create enabling business environments. Encouraging Public–Private Partnerships (PPPs), enforcing transparent regulatory systems, and negotiating FDI agreements with stronger local content requirements are also suggested as measures to maximize benefits. Ultimately, while FDI is not a panacea for SSA’s developmental challenges, it represents a powerful catalyst when complemented by sound governance, strategic sectoral targeting, and inclusive growth policies..