Trade openness, Foreign Direct Investment and economic growth: case of Southern African Development Community

Abstract

This study's primary objective is to examine the impact of trade liberalization and foreign direct investment on the economic growth of the Southern African Development Community. This study contributes significantly to the ongoing discussion of the effects of trade liberalization and foreign direct investment (FDI) on the economic development of the Southern African Development Community. The study employs World Development Indicator (WDI) quarterly data from 1970(1) to 2022(1) and uses panel regression and Dumitrescu-Hurlin (DH) panel causality methodologies. According to empirical evidence, economic growth is positively and substantially influenced by trade openness and human capital. On the other hand, foreign direct investment (FDI) may harm economic growth. The results of the Dumitrescu-Hurlin (DH) panel causality tests indicate that the community does not support the existence of a causal relationship between foreign direct investment (FDI) and economic development. The tests show, however, that there is bidirectional causality between trade openness and economic growth in the Southern African Development Community (SADC). According to the research findings, significant infrastructure improvements are required to maximize the benefits of foreign direct investment inflows in the Southern African Development Community (SADC). It is essential to establish stringent regulations and policies to supervise the repatriation of the largest foreign direct investment profits while also addressing the issue of their absorption capacity.