Foreign direct Investment and economic growth: The role of the governance

This paper contributes to the literature on the impact of foreign direct investment on economic growth, conditionally, by the good institutional quality in African countries over the period 1996-2016. For this purpose, our survey uses the Pedroni panel cointegration test to detect the existence of a long-run relationship, fully modified ordinary least square, dynamic ordinary least square, and system GMM to check the endogeneity problem. Indeed, FDI unaccompanied by good governance quality (the fight against corruption, political stability, and sound regulatory quality, rule of law, government effectiveness, voice and accountability) has adverse effects on economic activity. Our results show that the interaction between overall governance indicators and FDI has a positive and statistically significant effect on economic growth in the African countries using the FMOLS, DOLS and S-GMM. Then this paper suggests that African governments aiming at attracting more FDI and thus improving their economic growth need to ameliorate the structure governance added to their business climate.