The Differential impact of Foreign Direct Investment on Economic Growth between Landlocked and Coastal African countries

The main motivation for this study is to determine why foreign direct investment does not produce the same level of growth in African countries. Specifically, it investigates whether being landlocked or having coastline access fundamentally changes how inflows of FDI translates into short and long run growth, a critical question for designing effective continental investment policy. The relationship between foreign direct investment and economic growth is a topic that sparks debate and needs further exploration. This study explains the differential impact of foreign direct investments on growth of landlocked versus coastal African countries during 1996 to 2023. We utilized a Panel Autoregressive Distributed Lag model alongside Pool Mean Group estimation, complemented by Pedroni and Kao co-integration methods and panel causality tests. The results show a stable long-run relationship between net foreign investment inflow and growth in both groups of countries. Specifically, a 1% increase in FDI results in a 1.44% rise in real GDP for coastal nations, compared to a mere 0.26% increase for landlocked countries, leading to a growth disparity of 1.18%. This analysis emphasizes the importance of considering geographical factors when exploring the relationship between foreign direct investment and economic growth. It also highlights the necessity for targeted economic policies to address the distinct challenges and opportunities that landlocked and coastal African nations encounter. Hence Landlocked African countries must compensate for geographic constraints through infrastructure, strong institutions, regional cooperation, and human capital development.