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The Characteristics and Determinants of FDI in Ghana

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Abstract

Foreign Direct Investment (FDI) can be a valuable tool for development. However, not all forms of FDI are equally beneficial for the host country. The article analyses the characteristics and determinants of FDI in a typical developing country: Ghana. Moreover, key policy areas are indicated, in order to enable Ghana both to attract more FDI and to increase the benefits from these capital inflows. The analysis combines qualitative and quantitative methods and is partly based on data retrieved from the World Bank's 2007 Enterprise Survey, and partly on our own survey of 54 multinational enterprises operating in Ghana.

Abstract

Les Investissements Directs à l’Etranger (IDE) peuvent être des outils précieux de développement. Cependant, toutes les formes d’IDE ne sont pas également bénéfiques pour le pays d’accueil. Cet article analyse les caractéristiques et déterminants des IDE dans un pays en voie de développement typique: Le Ghana. Par ailleurs, des domaines de politique économique déterminantes sont indiqués, afin de permettre au Ghana à la fois d’attirer davantage d’IDE et d’augmenter les bénéfices qu’il tire de ces flux de capitaux. Cette analyse combine des méthodes qualitative et quantitative et repose en partie sur des données tirées de l’Etude “Entreprises” réalisée en 2007 par la Banque Mondiale, et en partie sur une étude que nous avons nous même menée auprès de 54 entreprises multinationales opérant au Ghana.

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Notes

  1. See the literature review by Busse and Groizard (2008).

  2. See Markusen (2002), Navaretti and Venables (2004), Helpman (2006), Caves (2007), Dunning and Lundan (2009) and Hansen and Schaumburg-Müller (2010) for literature surveys.

  3. This is generally consistent with studies that have tried to explain differences in export performance of countries in SSA and find that manufacturing export performers are found in countries with relatively higher production efficiencies (Teal, 1999; Söderbom and Teal, 2000).

  4. Since the Ghana Investment Promotion Centre (GIPC) does not record FDI in the mining sector, it is difficult to obtain a full sectoral break down. Moreover, GIPC does not provide records for FDI in the Free Trade Zones.

  5. To exhibit potential positive spillover effects, foreign companies must have a technological advantage over domestic companies. Arnold and Javorcik (2009) show that foreign participation increased productivity in acquired plants in Indonesia.

  6. See Helpman (2006) and Görg and Strobl (2001) for literature reviews on horizontal spillovers.

  7. According to the World Bank (2008b), the data retrieved from the 2007 Enterprise Survey are not comparable with earlier firm surveys, for example, the World Bank Regional Program on Enterprise Development 1992–1994 survey. Above all, the questions, the approach, and the survey methodology have changed substantially.

  8. The sectoral distribution of domestic versus foreign firms in the sample is roughly equal.

  9. While Access to Finance provides information on the ease of obtaining credit, it does not give any evidence regarding whether or not the firms used credit from banks to expand their operations. Bank Credit fills that gap and, hence, acts as a complement.

  10. We have used different definitions of value added in the analysis such as total sales minus costs of raw materials and intermediate goods. Yet, the results do not change much. We use data for total sales instead of total production, as information for the latter is not available.

  11. For Employees and Value Added per Worker, we use the natural logarithm to reduce the skewness in the data. In fact, tests on the functional form of the model specification showed that the logarithmic version should be preferred.

  12. We add Imports only in the manufacturing sub-sample, as there is no import data for non-manufacturing firms that provide information on market shares. In other words, the additional regression for all firms using import data would be identical to the regression reported in column 4.

  13. All results that are not reported in this study can be obtained from the corresponding author upon request.

  14. See, for example, Moss et al (2005), who compared domestic and foreign firms in Kenya, Uganda and Tanzania. Caves (2007) provides a survey of the literature.

  15. The firms are categorised as follows: small firms with less than 50 employees, medium-sized enterprises with 51–500 employees, and large companies with more than 500 employees.

  16. Although the sample is not random, the distribution across countries of origin is fairly consistent with the general distribution of FDI by geographic origin.

  17. MNEs were asked to pick only one variable from among the set of variables presented to them – that is the most important one.

  18. Disaggregated results for further subcategories not shown. Again, the detailed results from the company survey can be obtained from the authors.

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Authors and Affiliations

  1. London School of Economics and Political Science (LSE), UK

    Fabian Barthel

  2. Ruhr-University of Bochum, Germany

    Matthias Busse

  3. Institute of Statistical, Social and Economic Research (ISSER), Ghana

    Robert Osei

Authors
  1. Fabian Barthel
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  2. Matthias Busse
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  3. Robert Osei
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Barthel, F., Busse, M. & Osei, R. The Characteristics and Determinants of FDI in Ghana. Eur J Dev Res 23, 389–408 (2011). https://doi.org/10.1057/ejdr.2011.4

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