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This study explores the relationship between trade openness, infrastructure, foreign direct investment (FDI) and economic growth using a panel of forty two sub Saharan Africa (SSA) countries over the period 1980-2003. The results show that FDI depends on trade openness and GDP per capita. Further results show that the interaction between trade openness and infrastructure leads to a slight increase in FDI inflows. The results also indicate that FDI has a positive and significant effect on growth. This study will assist policy makers to further increase efforts towards trade openness and infrastructural development to enhance the level of FDI inflow for sustainable growth.
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INTRODUCTION
The slow/stagnant economic performance of the sub Saharan African (SSA) countries has received considerable attention in recent years such that Easterly and Levine (1997) summarised it as 'potentials unfulfilled with disastrous consequences'. This region consists of 47 countries, 34 of which are ranked as the world's poorest countries making it difficult for foreign investors to invest as they are perceived as 'risky' because of bad business climate (Mahamet, 2006). Although the countries are differently endowed with natural resources (crude oil, minerals and metals) which in effect should contribute to economic success and development, nevertheless, corruption, unemployment, poor leadership, lack of political legitimacy, bad policies, ethnic diversity, inadequate infrastructure and underdevelopment among others makes it difficult for the countries to realise their full potential. Recent empirical evidence suggests that to achieve sustainable economic growth and to alleviate poverty from the region, there is a need to encourage domestic and foreign investment (FDI) and to develop and modernise the financial markets as deeper and better functioning financial markets can stimulate economic growth (Collier and Gunning, 1999; Agarwal, 2001, Ndikumana, 2001 and Kumo, 2008).
In its survey of FDI, the World Investment Report (2006) by UNCTAD confirms that total FDI inflow into developing countries jumped by 22 per cent to $334 billion in 2005. In addition, total FDI inflow to developing economies reached $499 billion in 2007 of which SSA received about $33 billion. According to figure i, the average inflow of FDI as a per cent of GDP to the SSA between 1980 and 2003 was 1.27 per cent with the highest share recorded in 2003 at...