Growth Effects of Foreign Direct Investments in Zimbabwe: Do Sources Matter?

Abstract

The study investigated foreign direct investment (FDI) growth effects in Zimbabwe using data spanning 1990-2019. FDI-led growth theories often view FDI as an enabler of economic growth. However, the extent may depend upon the source of FDI. Nonetheless, existing studies on Zimbabwe base their conclusions on aggregate FDI. Accordingly, we provide fresh evidence by disaggregating FDI inflows by sources. This is logical given the reality that FDI from different sources is heterogeneous. We used the Autoregressive-Distributed-Lag (ARDL) technique to estimate a time series model derived from neoclassical and endogenous growth models. Results indicated that FDI has a significantly positive growth effect. More importantly, we document that FDI sources do matter greatly. Specifically, FDI flows from Africa and Asia were found to have positive and significant growth effects. However, FDI from Europe and the United States has negative and insignificant impacts. We proffer two recommendations. Zimbabwe should attract more FDI from economies/regions in the vicinity of its level of development. Accordingly, Zimbabwe should rationally embrace the recently launched AfCFTA. It is vital to strike a balance between market deepening and promoting domestic production. Also, while most FDI from Asia is from is China, we urge Zimbabwe to provide a conducive environment to investors from the rest of Asia. This can be achieved through signing bilateral FDI agreements with Asian countries.