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Investigating the role of disaggregated economic freedom measures and FDI on human development in Africa

Kofi Korle (Department of Economics, Central University, Accra, Ghana)
Anthony Amoah (Department of Economics, Central University, Accra, Ghana)
George Hughes (Department of Economics, Central University, Accra, Ghana)
Paragon Pomeyie (Department of Economics, Central University, Accra, Ghana)
Godson Ahiabor (Department of Economics, Central University, Accra, Ghana)

Journal of Economic and Administrative Sciences

ISSN: 1026-4116

Article publication date: 2 June 2020

Issue publication date: 29 October 2020

362

Abstract

Purpose

The purpose of the study is to investigate the role of disaggregated economic freedom measures in the foreign direct investment (FDI) and human development nexus.

Design/methodology/approach

The study uses a panel data of 32 selected African countries from 1996 to 2017. A dynamic ordinary least squares (DOLS) with fixed effects and instrumental variable (IV) econometric techniques was used to address issues of endogeneity and serial correlation commonly associated with panel time series data.

Findings

The Results indicate that FDI without accounting for absorptive factors has a positive but insignificant effect on human development for the selected African countries. However, FDI has a positive and significant effect on human development when interacted with measures of economic freedom such as investment freedom, business freedom and financial freedom. In contrast, yet plausible, FDI has a negative influence when interacted with property rights, trade freedom, government integrity and tax burden.

Practical implications

The study posits that to attract FDI into Africa with the purpose of improving human development, relevant absorptive capacities such as business, investment and financial freedom environment are critical. However, excessive capital flight and government interference through taxation and abuse of property rights should be controlled if the continent seeks to promote human development through FDI.

Originality/value

The novelty and originality of the study, are evident in the use of disaggregated measures of economic freedom as comprehensive absorptive capacities to examine how they complement FDI to impact on human development in Africa.

Keywords

Acknowledgements

Authors are grateful to Professor Clara KorKor Fayorsey, Professor Adusei Jumah and other faculty members for their contributions during the 2018/2019 annual colloquia of the Faculty of Arts and Social Sciences, and the Central Business School, Central University.

Citation

Korle, K., Amoah, A., Hughes, G., Pomeyie, P. and Ahiabor, G. (2020), "Investigating the role of disaggregated economic freedom measures and FDI on human development in Africa", Journal of Economic and Administrative Sciences, Vol. 36 No. 4, pp. 303-321. https://doi.org/10.1108/JEAS-02-2019-0017

Publisher

:

Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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