An Empirical Analysis of the Effect of Foreign Direct Investment on Economic Growth in Eswatini

  • David C. Mabuza Ministry of Commerce, Industry and Trade, Mbabane, Eswatini
Keywords: Eswatini, foreign direct investment, economic growth, ARDL bounds test, cointegration, error correction model

Abstract

This study examined the effect of foreign direct investment (FDI) on economic growth in Eswatini over the period 1980-2018, using the autoregressive distributed lag (ARDL) bounds testing approach to cointegration and error correction model (ECM). The study showed that 59.3% of the annual variation in GDP was jointly explained by the variables included in the model. Foreign direct investment (p<0.01) and labour (p<0.01) have positive effect on economic growth, while domestic investment (p<0.05) and trade openness (p<0.01) have negative effect on economic growth in the long run. In the short run, economic growth is positively influenced by foreign direct investment (p<0.01) and negatively influenced by domestic investment (p<0.01). The study recommends that government should adopt measures that will help attract more FDI. The government should thus continue improving the investment climate through accelerating implementation of the reforms to investor roadmap to remove restrictions to FDI. The government should promote policies intended for human capital formation and skills development to enhance absorptive capacity and productivity. There is need for government to invest in building domestic manufacturing capabilities with a view to fast-tracking the country’s transition towards industrialization, bolster export diversification and enhance international competitiveness.

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Published
2022-05-11
Section
Articles