The Impact of Foreign Direct Investment (FDI) on Economic Growth (EG): Evidence from Djibouti

Abstract

The achievement of EG and development is considered the core objective for both Developing Countires (DCs) and Least Developed Countries (LDCs), so countries try to get adequate funding to achieve this goal through optimal macroeconomic policies and different strategies. Countries prefer other mechanisms with less burden and cost to achieve economic growth, such as FDI flows. International development-oriented institutions such as WB and IMF recommend and consider FDI flows as the most important factors of the modern technology transfer, management, and know-how, which is necessarily needed in the local investment projects in poor countries, Therefore FDI represents optimal external sources of growth.

The objective of this study is to explain the impact of FDI on the EG of Djibouti. To achieve this objective the study used a secondary annual time series data for the period 1985-2019 by the method of Ordinary Least Square (OLS).

The study results showed that FDI in the case of Djibouti tends to be statistically insignificant effects on Djibouti‘s EG; on the other hand other factors such as the Human Development Index (HDI) and Gross Fixed Capital Formation (GFCF), Trade Openness (TOP) shows significant effects on the Gross Domestic Product (GDP). Finally, the Consumer Price Index (CPI) has no significance in the EG of Djibouti.

The findings provide critical information to Djibouti policy decision-makers to make an informed decision with regard to attracting investment and policies in encouraging foreign investors to invest in the country.