CAUSALITY NEXUS BETWEEN FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM GHANA AND CHINA

Foreign direct investment (FDI) has always been one of the imperative factors to the economic development of Ghana and China. This paper investigates the impact of foreign direct investment on economic growth using time series data over the period 1985-2015 in both countries. In Ghana, data was employed from Internal Monetary Fund (IMF) annual data and the statistical bulletin of Bank of Ghana. In china, we obtained our data from the National Bureau of Statistics of China and the Ministry of Commerce, China. Regression analysis of ordinary Least Square ((OLS) was used in analyzing the data. Furthermore, Augmented Dickey-Fuller Test, Johansen Co-integration Test and Granger Causality test was used to obtain the line of causality between FDI and economic growth in these two countries. The objective of this study is to determine the relationship and the causality nexus between Gross Domestic Product (GDP), Inflation and Consumer Pricing (INFCP), External Debt Stock (EDS), Gross National Income (GN1), Manufacturing Value Added (MVA), Industry Value Added (IVA) and Foreign Direct Investment (FDI). In examining the relationship between these factors, the results depicted that there exist a unidirectional and bidirectional causality running from FDI to GDP in Ghana and China respectively. Considering the crucial role FDI plays in the development of China and Ghana, this study concludes by proposing policy recommendations in Ghana and China aimed at enhancing and augmenting FDI and economic growth in these two countries.