外商直接投资对马里经济增长的影响

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THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIMasterDegreeThesis硕士学位论文IMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI(1985-2015)外商直接投资对马里经济增长的影响(1985-2015)Major:NATIONALECONOMIES专业：国民经济学StudentID:72016910096学生ID：72016910096Author:CHEICKOUMARCAMARA姓名：查克Supervisor:WANGMINGRONG老师：王明荣i THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIORIGINALITYDECLARATIONIherebydocertifythatthisthesisentitled“IMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI”,submittedtotheCapitalUniversityofEconomicsandBusinessforthehonorofthedegreeofMasterofEconomics,isatrueevidenceofresearchworkconcededbymeunderthesupervisionWANGMINGRONG.Iherebyrecognizeandactinaccordancewiththeuniversity’spolicyonplagiarism.Therefore,Ideclarethisthesistobeofmyowninlinewithappropriatereferenced.Tothebestofmyability,sohelpmeGod.CHEICKOUMARCAMARASignature………………………………..Date:……………………PROFESSORWANGMINGRONGSignature………………………………..Date:……………………独创性声明我特此证明，这篇论文题为“外商直接投资对马里经济增长的影响”,提交给首都经济贸易大学为荣誉经济学硕士学位，在国际贸易专业是研究工作的真实证据我在教授WANGMINGRONG的监督下承认I,特此了解并遵守该校的抄袭政策。因此，我声明这篇论文是我自己的，符合适当的参考。查克签名…………………………………………日期………………………………王明荣签名…………………………………………日期………………………………ii THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIInstructionsontheuseofauthorizedpaperIfullyunderstandtheCapitalUniversityofEconomicsreservationsabouttheuseoftherelevantprovisionsofthedissertation,namely:theschoolisentitledtoretainacopysenttothepaper,allowingthepapertobeaccess,borrowornetworkindex;schoolsmaypublishallorpartofthecontentsofthepaper,youcantakeaphotocopy,copymicroprintingorothermeanstosavepaper.Signature……………………………………….Date:13/06/2018关于论文使用授权的说明本人完全了解首都经济贸易大学有关保留、使用学位论文的有关规定，即：学校有权保留送交论文的复印件，允许论文被查阅、借阅或网络索引；学校可以公布论文的全部或部分内容，可以采取影印、缩印或其它复制手段保存论文。（保密的论文在解密后应遵守此规定）签名………………………………………….日期:13/062018iii THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIDEDICATIONWiththehelpfromthealmightyGod,Idedicatethisresearchtomymother,MariamTraoreforhergoodguidance,encouragementandnumeroussacrificesallthroughmylearningjourney.MaymyalmightyfatherBakaryCamaraandallmyFamilyblessyouMother,Iloveyoumore.iv THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIACKNOWLEDGEMENTInitially,letmethankthealmightyfatherGodforthisprospect.IwouldliketoalsothankmysupervisorProfWangMingRongoftheSchoolofEconomics;CapitaluniversityofEconomicsandBusinesswhosesafeguidemeintherightdirectionthroughoutthepreparationofthisresearch.Herpatientandenormousknowledgeskillsarevast.Secondly,IwouldliketoextendmygratitudeandappreciationtoallmyLecturersandstaffoftheSchoolofEconomics,foryourdirectionallthroughmycourseworkandduringmystayinChina.ItisallthroughyourcollectiveeffortandsupportthatIaccomplishalot.Mayyoukeepontodirectandbuildupthemindsofscholars.Thirdly,letmeacknowledgealltheprofessorswhowereconcernedinthesupervisionofthisresearch.Yourkindnessefforthadcontributedtotheachievementofthisresearch.Toallmyfriendsandclassmatesthankyouforyourhelp,supportaswellascontributions.Ithasbeenaamazingculturalexperience.Lastbutnotleast,IwouldwishtorecognizemydeepgratitudetomyparentsMRandMRS.CamaraandthewholeentireCustomsandExciseDepartmentoftheMinistryofFinancefortheirunbrokensupportandencouragementallthroughmystudyinChinaandduringthepreparationofthisresearch.ThankyouandJahbless.v THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALITableofContentsORIGINALITYDECLARATION..........................................................................................................................iiInstructionsontheuseofauthorizedpaper...............................................................................................iiiDEDICATION.................................................................................................................................................ivACKNOWLEDGEMENT...................................................................................................................................vABSTRACT.....................................................................................................................................................ixListofTables................................................................................................................................................xiListofFigures...............................................................................................................................................xiLISTOFACRONYMS.....................................................................................................................................xiiChapterI:Introduction.................................................................................................................................11.1BackgroundoftheStudy.....................................................................................................................21.2.ProblemStatement............................................................................................................................21.3.ResearchQuestions...........................................................................................................................31.4.Objectivesofthestudy......................................................................................................................31.4.1.Mainobjective............................................................................................................................31.4.2.Specificobjectives.......................................................................................................................31.5.Significanceofthestudy....................................................................................................................3ChapterII:LiteratureReview........................................................................................................................52.1.TheoreticalReview.............................................................................................................................52.1.1Neoclassicaltheoryandendogenousgrowth..............................................................................52.1.2.InvestmentDevelopmentPathModel........................................................................................62.1.3.Theoryofcapital.........................................................................................................................72.1.4.Selectedgrowththeories............................................................................................................72.2.EmpiricalReview................................................................................................................................82.2.1Internationalevidence.................................................................................................................82.2.2LocalEvidence..............................................................................................................................92.2.3.MotivationandtypesofFDI......................................................................................................102.2.4.CausalitybetweenFDIandEconomicGrowth..........................................................................112.2.5.ImpactsofFDI...........................................................................................................................112.2.6.ConditionsaffectingFDIimpactsonEconomicGrowth...........................................................132.3Summaryoftheliteraturereview.....................................................................................................16ChapterⅢ:TrendsAnalysisofForeignDirectInvestmentandothersvariablesinMali...........................17vi THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI3.1ProfileofMali....................................................................................................................................173.2ForeignDirectInvestmentinMali....................................................................................................183.3.Keylegislativeinitiativestoattractforeigninvestments.................................................................223.3.1.ExportProcessingZonesAct.....................................................................................................223.3.2.InvestmentPromotionAct........................................................................................................223.4.SpecialEconomicZonesAct,2015...................................................................................................223.6.FDIandEconomicGrowth-Mali’sTrend..........................................................................................233.7.GovernmentExpenditureinMali....................................................................................................25ChapterⅣ:Methodology...........................................................................................................................274.1.ResearchMethodology....................................................................................................................274.2.ModelEstimation.............................................................................................................................274.3.AnalyticalModel.............................................................................................................................274.3.1.Operationalizationofthevariables:..........................................................................................284.4.Pre-estimationtests..........................................................................................................................284.1.1StationarityTest.........................................................................................................................284.4.2.Co-integrationTest...................................................................................................................29ChapterV:EmpiricalResults.....................................................................................................................305.1.EmpiricalResults.............................................................................................................................305.2TestingforStationarity(DataPresentationandAnalysis)................................................................305.3.GrangerCausalityTest....................................................................................................................315.4.TestingforCo-integration................................................................................................................315.5.DiagnosticTests...............................................................................................................................325.5.1.SerialcorrelationTest...............................................................................................................325.5.2:HeteroscedasticityTest............................................................................................................335.6.ResultsDiscussion...........................................................................................................................34ChapterVI:ConclusionandPolicyImplications........................................................................................376.1Conclusion........................................................................................................................................376.2PolicyImplications............................................................................................................................396.3LimitationsoftheStudy....................................................................................................................406.4AreasforFurtherStudy.....................................................................................................................41REFERENCES................................................................................................................................................42vii THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIAppendices..................................................................................................................................................47AppendixI:UnitRootTestregression...................................................................................................47AppendixII:DescriptiveStatistics.........................................................................................................49AppendixIII:CorrelationMatrix............................................................................................................50AppendixIV:RamseyTest.....................................................................................................................50AppendixV:CUSUMTest.....................................................................................................................51AppendixVI:NormalityTest................................................................................................................51AppendixVII:MulticollinearityTest.....................................................................................................52AppendixVIIIOrdinaryleastsquares(OLS)regression........................................................................52viii THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIABSTRACTDifferentresearchershavedifferentviewsontheexactcontributionofforeigndirectinvestmentinthediscourseoneconomicgrowthinseveraldevelopingcountries.SupportersbelievethatForeignDirectInvestmentincreasesdomesticcapitalandimprovesproductivityandgrowthbyfillingeconomies;foreigncurrency;performanceandmanagementgaps,cross-bordercreditandriskswaps,technologyandskillstransfer,jobcreation.OpponentsalsobelievethatForeignDirectInvestmentexposesdomesticmarketstoexternalvolatility,theincreaseindependenceandthetransformationofdomesticsavingscanbringmacroeconomicstability.TheGovernmentofMaliattachesgreatimportancetothecontributionofForeignDirectInvestmenttoeconomicgrowth,asevidencedbythemanydeliberateactionstakentoexploitForeignDirectInvestmentflowsintotheeconomy,includinglegislationandtradeincentives.However,previousstudiesoftherealcontributionofFDItoeconomicgrowthortheconditionsunderwhichFDIstimulateseconomicgrowthhaveproducedmixedresults.GiventhelevelofimportanceattributedtoFDIrelatedtoeconomicgrowthinMali,thisstudyinvestigatestheeffectofforeigndirectinvestmentonthegrowthoftheMalianeconomyusingdataonFDIinflowsandGDPfrom1985to2015.Inordertoachieveourmainobjective,wehavedevelopedthefunctionCobbDouglassproductionandregressionofordinaryleastsquares.Intheregressioncalculationswehadtousesuchasgrossdomesticproduct(GDP)isrepresentedasthedependentvariablewhileforeigndirectinvestment(FDI),publicexpenditure(GE),andhumancapital(HC)aretheindependentvariables,toevaluatetheimpactofFDIoneconomicgrowthinMali.TheresultsshowthatwhenFDIinflowincreaseby1%,thatwillincreaseGDPby0.061%,allthingsbeingequivalent,howeveritisstatisticallyverysignificantat5%of0.000%,thismeansthatwhenthegovernmentofMaliattractsmoreinvestorsthatwilllikelyincreaseeconomicgrowth.Themainconclusionisthat0.061%oftheevolutionoftheeconomicgrowthinMaliduringtheperiodisdueoftheforeigndirectinvestments.Initself,FDIissignificanttoinfluenceeconomicgrowthinMali,butmustinteractwithinfrastructuredevelopmentandtheopennessoftheeconomytoproducethedesiredimpactoneconomicgrowth.Therefore,fortheeconomytoachieveitsmedium-andlong-termgoals,whosesuccessdependsonFDIinflows,theseconditionsmustbeexploitedorexplored.Keyword:GrossDomesticProduct,ForeignDirectInvestment,MALIix THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI摘要不同的研究者在关于对一些发展中国家经济增长中外商直接投资产生的实际贡献有不同的看法，支持者认为外商直接投资通过发展经济、外汇、绩效管理、跨境贷款、风险互换，技术转移、制造就业等来增加国内资本，提高生产率和增长率。反对者认为外商直接投资会把国内市场暴露在外部的波动环境中，加强独立、转移国内储蓄可以使宏观经济稳定。马里政府十分重视外商直接投资对经济增长的贡献，包括立法和贸易刺激等许多利用外商直接投资投入到经济发展的举措都能证明这一点。但是之前研究关于外商直接投资对经济增长的实际贡献，或外商直接投资刺激经济增长的条件，让我们得出一些结论。考虑到外商直接投资对马里经济增长的重要性，此研究使用了1985-2015年外商直接投资的流入和国内生产总值的数据，调查了外商直接投资对马里经济增长的影响。为了完成我们的主要目标，我们采用了柯布道格拉斯生产函数和最小二乘法回归分析。在回归统计中，我们必须使用如代表因变量的国内生产总值，和代表自变量的外商直接投资（FDI），公共开支（GE）和人力资本（HC），用它们来评估外商直接投资在马里对经济增长的影响。结果显示当外商直接投资的流入增加1%时，国内生产总值增加0.061%，投入和增长总是对等的，然而在统计层面当0%时的5%时候，这意味着当马里政府吸引了更多投资者时，经济增长就有可能发生。大致结论就是在此期间是由于外商直接投资的原因才产生了0.061%的经济增长结果。本质上说外商直接投资在马里对经济增长的影响是非常大的，但是这些投资要投入基础设施建设和经济的开放上才能产生需要的增长效果。所以，任何需要外商直接投资来完成中长期增长目标的经济体，都需要利用或探索这些条件。关键词：国内生产总值，外商直接投资，马里x THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIListofTablesTable1:UnitRoot(ADF)results...............................................................................................................30Table2:GrangerCausalityTest.................................................................................................................31Table3:Resultsestablishingco-integration...............................................................................................32Table4:SerialCorrelationLMTest...........................................................................................................33Table5:HeteroscedasticityTest:Breusch-Pagan-Godfrey........................................................................33Table6:DescriptiveStatistics....................................................................................................................49Table7:Correlationmatrix.........................................................................................................................50Table8:RamseyTest..................................................................................................................................50Table9:CUSUMTest................................................................................................................................51Table10:NormalityTestoftheResiduals.................................................................................................51Table11:MulticollinearityTest.................................................................................................................52Table12:OLSregression...........................................................................................................................52ListofFiguresFigure1:TrendofEconomicGrowth.........................................................................................................23Figure2:TrendofForeignDirectInvestment............................................................................................23Figure3:Mali’sFDIandEconomicGrowthtrend.....................................................................................24Figure4:TrendofHumanCapitalinMali……………………………………………………………….25Figure5:TrendofGovernmentExpenditureinMali................................................................................26xi THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALILISTOFACRONYMSWBWorldBankGDPGrossDomesticProductEMUEuropeanMonetaryUnionFDIForeignDirectInvestmentEUEuropeanUnionGFCFGrossFixedCapitalFormationIDPInvestmentDevelopmentPathLDCslessDevelopingCountriesODAOfficialDevelopmentAssistanceOECDOrganizationforEconomicCo-operationandDevelopmentO-L-IOwnership,LocationandInternalizationadvantagesOLSOrdinaryLeastSquareUNCTADUnitedNationsConferenceonTradeandDevelopmentUNDPUnitedNationsDevelopmentProgramxii THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIChapterI:IntroductionDevelopingcountries,regardlessoftheirgeographicallocations,exhibitsomecommoncharacteristicsincluding:lowlivingstandards;lowestlevelofLaborinproduction;largepopulationgrowthlevelsanddependenceburden;highandgrowingunemploymentlevelsandunder-employment;andpredominantlyprimaryproductsexport;andweakininternationalrelationships(Todaro1977).Inessence,thismeansthattheseeconomieshaveslowgrowthrates,lowpercapitaincomesandahighpropensitytoconsume,which,inturn,donotallowthemtosave.Thatis,theyhavehigherconsumptionchargescomparedtotheleveloflocalwealthfoundationwhichresultstolowcapitalaccumulation,andthuslocalinvestments,astheeconomiesfacedeficienciesincapitalnecessarytoundertakedevelopmentinitiatives.Giventhelowdomesticinvestments,privateoverseasinvestmentcurrentsareneededtoexpandproductiveandtechnologicalcapacitiesofdevelopingeconomies.DevelopingcountriesparticularlyMaliisgenerallyaffectedbysavingsdeficient.Attheendprivateforeigncapitalisleftastheonlybasisofcapitalforinvestment.InMaliforeigndirectinvestment(FDI)ispreferredmostrelatedtootherproceduresofprivateforeigncapitalasitperceivedtoplayacentralmacro-economicroleinmotivatingeconomicgrowth.AdvocatesandpoliciesmakerhavecitedtheabovementionedfactorscoupledwithotherpotentialprofitsofFDIwhilemakingthesituationforincreasedFDIinflows.Moreover,foreigninvestmentismeasuredtobecomparativelystablewithlesssensitivitytoeconomicfluctuationswhencomparedtootherformofinvestmentlikeportfolioinvestment.TheWorldBank2010definesFDIascross-borderequityflowsbetweeneconomieswherealocalresidentinoneeconomycontrols(atleast10%votingstock)theoperationsofabusinessentitydomiciledinextraeconomicjurisdiction.FromtheLawonInvestmentPromotion(RepublicofMali2004),itcanbesaidthatforeigninvestmentmeansthecontributionofforeigncapitalinthecreation,growth,reorganizationofatradingcompanyinthecountry.TheforeigninvestorcantaketheformofanaturalpersonandnotacitizenofMali;apartnershipwithmajoritycontrolbelongingtoanon-Malian;oracompanyincorporatedunderotherjurisdictionallegalchannelsotherthanMali.TheWorldBank2010contrastsFDIfromportfolioinvestmentbyassociatingthedegreeofinfluenceeachoneaccordstherespectiveowners.Whileportfolioinvestmentsrepresentpassiveownershipofsecurities,FDIrepresentsanactiveparticipationofownersindecisionmakingandoperationsofthefirm.OpinionisdividedabouttheactualcontributionofOverseasDirectInvestmentstowardseconomicgrowth.ProponentsbelieveineffectivenessandbenefitoffreemarketmechanismofFDIandarguethatFDIfillsthesavingsgap,foreignexchangegap,revenuegapandmanagementgap(Todaro1977),promotecreditandrisksharingacrossborders(O’Conneletal,2010)andbringwiththemsuperiortechnologyandskillsbase,promoteskillupgrading,offer1 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIemploymentandenhancedinnovationandthuscanbesaidtoenhanceefficiencyanddevelopment(Blomström1986).Accordingto(Abala2014)FDIaugmentsdomesticcapital,facilitatemovementoftechnologyandtradeacrossborders,skillsdevelopmenttolocallabour,andupgradesmethodicalandorganizationcapacities.(Mwega2009)seesFDIasimpactingpositivelyontheprofitandproductivityprospectsofprivatelocalinvestmentthroughprovisionofinvestablefinancialresources,newtalentsandcompetence.OpponentsarguethatFDIunderminemacro-economicstabilitybyexposingdomesticmarketstoexternalvolatilityandsharpeningthetrade-offsbetweencompetingobjectivesofmonetarypolicy,widensthesaidgaps,increasedependency,andcrowdsoutlocalsavings(O’Conneletal,2010).Hence,accordingto(Schnitzer2002),manyeconomiesinAfricauntillate1980s,didnotassignaboundlessvaluetoFDIasmanyleadersfearedfor“lossordilutionofpoliticalsituation,negativeeffectonlocalfirmse.g.bankruptcyandgeneraldeteriorationtheenvironmentresourcesespeciallyifforeigninvestmentswereengagedtothenaturalresourcesector.1.1BackgroundoftheStudyInmanydevelopingcountries,particularlyinAfrica,partsofAsiaandSouthAmerica,muchemphasisisplacedontheabilityofforeigndirectinvestmenttopromotetheireconomiesandtofurtherthedevelopmentandgrowthoftheircountry.Inseveralcountries,ittriestoavoidthatFDIprovidesadditionalresourcesthatcanincreaseandcontributetotheeconomicperformanceofthehostcountry.FDIismoreinterestinginthisareathanitishelpingtobuildskillsthroughtechnologytransfer,thatis,localfirmstrainlocalstaffinhowtomanagethespecificthingsoftheiroperations.Foreigninvestmentalsohasastrongindustrialimpactthatimprovesandincreasesproductionratesandpromotesthecompetitivenessofhostcountryproductsinglobalmarkets,andisalsoestimatedtocontributesignificantlytothesuccessoftechnologytransfer.FDIisthoughttofillthetechnologicalgapthatishighintheLDCthroughdirectandindirecttechnologytransfers(WorldDevelopmentReport,2011).1.2.ProblemStatementTheGovernmentofMaliplacesahighpremiumontheinvolvementofinwardsFDItowardseconomicgrowthasevidencedinvariousdeliberateinterventionsithasinitiatedtoharnessFDIinflowsintotheeconomy.However,Mali’sreceiptsofinboundFDIasafractionofGDPremainslowerthanSub-SaharanAfricai.e.asixyear(2010-2015)averageof0.9%comparedto2.4%forSub-SaharaAfrica(SSA)(TheWorldBank2016)DespitethegeneralperceptionofthepositivecontributioninboundFDItowardseconomicgrowth,informationontheactualimpacttotheeconomicgrowthofMalihasbeeninsufficient.Yet,successivegovernmentshavelaidemphasisontheneedtoimproveinvestmentclimate(insomeinstancesofferingconcessions)inbidstospureconomicgrowth.ThequestioninthemindsofpolicymakersiswhatistherealsupportofFDIoneconomicgrowth?Aretherespecific2 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIconditionsunderwhichFDIboostseconomicgrowth?Manypreviousstudiesintheseareashavegivenmixedresults.Giventhelevelofimportanceaccordedtoin-boundFDItoMali’seconomicgrowth,itisnecessarytoempiricallyassesstheFDI-economicgrowthnexus.1.3.ResearchQuestionsThisstudywillundertakeatimeseriesanalysisofFDIandeconomicgrowthinMalifrom1985to2015.Indoingso,thefollowingquestionswillbeanswered:i.DoesFDIreallycomplementgrowth?ii.WhatfactorsdeterminetheeffectsofFDIonMali’seconomicgrowth?1.4.Objectivesofthestudy1.4.1.MainobjectiveThemainobjectiveofthestudyistofindoutwhetherFDIinflowshaveanimpactoneconomicgrowthinMali.1.4.2.SpecificobjectivesThestudyseeksto:i.EmpiricallyanalyzetheimpactofnetaggregateFDIinflowsoneconomicgrowthinMaliovertheperiod1980-2015ii.DeterminethecomplementaryfactorsunderwhichFDIboostsgrowthashypothesizedinliteratureiii.Makepolicyrecommendationsbasedon(i)and(ii)above.1.5.SignificanceofthestudyTheGovernmentofMalihasinstituteddeliberateinterventionstoattractdirectinvestmentsfromabroad.ThisstudycontributestothediscourseonthegrowthofFDIandeconomicgrowthbyextendingthedebatebeyondthedirectattributionofFDItoeconomicgrowthbyanalyzingthefactorsthataffectgrowththrougheconomicgrowthbyFDI.ThestudywillhelpusrealizetherealworthofsuchinterventionsandinformdecisionsaboutonhowtheeconomywillharnesstheFDI-inducedeconomicgrowth.Additionally,sincethestudycoversarelativelylongperiod(1985-2015)duringwhichtheeconomyexperiencedinternalshocksfindingswillhelpusanalyzetheimpactsoftheseshocksastheyhaveadirectbearingontheinvestmentclimateingeneralandeconomicstanceadoptedbythenation.TheoutcomeofthisenquirywillinformpolicydecisionswithrespecttoMali’sinvestmentstance.IfthecomplementaryfactorspositivelyaffecttheimpactofFDIineconomicgrowth,policymakersmaydevicewaystoencourage,availorfacilitatetheprovisionofthesefactorstoattractmoreFDIinflowsintotheeconomy.IfitemergesthatFDIandeconomicgrowtharepositivelyrelated,thenpoliciesaimedatincreasingFDIinflowsintoMaliwillbeencouraged.3 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIConversely,ifFDIhasnegativeimpactoneconomicgrowth,thenpolicymakerswouldreconsiderinitiativesalreadyinplacetoattractFDI.ItwillthusopenupnewareasofenquirypartlyinformedbythechangingdynamicsofWorldInvestment,andtheeverprogressiveMalianEconomicAgenda.Assuch,newenquirieswilladdresstheMali-specificFDIeconomicgrowthnexus.AlsotoshowthatnostudywasdonebeforeonthiscaseofmycountrywhatreallymotivatedmetodothissoFDIisveryimportantfortheeconomicgrowthofdevelopingcountriesespeciallyMalicouldbemycontributionofthisstudy.4 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIChapterII:LiteratureReviewThischapterwilldiscussexistingtheoriesandempiricalstudiesinordertohaveabettergraspofthenature,scope,andmethodologyusedinpriorstudies.2.1.TheoreticalReview2.1.1NeoclassicaltheoryandendogenousgrowthThetheoryofneoclassicalgrowthandthetheoryofendogenousgrowthformthebasisofmostempiricalworkonforeigndirectinvestmentandeconomicgrowth.Solow'stheoryofneoclassicalgrowth(1956)developedaneoclassicalgrowthmodel.Thetheorydescribeshowtoachieveastablerateofeconomicgrowthwiththegoodforcesofthethreedrivingforces:labor,capitalandtechnology.ItcomesoutbycontrastingtheamountoflaborandcapitalinCobbDouglas'productionfunction,astateofsymmetryisrealized.Thistheoryemphasizesthattechnologicalchangehasagreatinfluenceoneconomicgrowth.Itmustalsoensurethateconomicgrowthwillnotcontinueunlessthereiscontinuoustechnologicalchange.Neoclassicaltheorypostulatesthatlong-termeconomicgrowthstemsfromtwoexogenousfactors,namely:technologicalprogressandgrowthofthelaborforce.Inneoclassicaltheory,foreigndirectinvestmentinflowsofferasolutiontothegapamongstsavingandinvestment,theexchangeratediscrepancyandthefinancialgap.Foreigndirectinvestmentmaybeadriverofeconomicgrowthforhostcountrybycumulatingcapitalformation,decreasingunemployment,stimulatingmanufacturinggrowth,providingmanagementknow-howandcreatingbrands,andaccesstotheinternationalproductionnetwork.Neoclassicaltheoryevaluatestheroleofindecisionininvestmentresolutions.Itstatesthatinvestorsareuncertainaboutfutures;theycanreduceinvestmentsorcompletelynotinvest.Conferringtothetheory,thereisundesirablelinkamidambiguityandinvestment.Theinstabilityofforeigndirectinvestmentconsequentlyisconsideredtohaveinfluenceoncountrieseconomicgrowth.Theendogenousgrowththeoryisamodeloftheequilibriumoftechnologicalchangeinwhichlong-termgrowthismainlymotivatedbytheaccumulationofknowledgebyprospectiveagentsthatmaximizeprofits(Romer,1986).ThetheoryofendogenousgrowthemphasizesthatFDIhasalong-termeffectonoutputgrowth.ToclarifythekeyroleofFDIinthelong-termgrowthofdomesticcountry,BarrowandSale-i-Martin,(1995);Mania,(1992);andRomer,(1987);hasmodifiedSolow'sneoclassicalgrowthmodelbyencompassinghumancapitalgrowthfactoraswellasphysicalcapitaltodescribethecrucialroleofFDIindevelopingeconomies.TheauthorshavemodeledFDIasameansofpromotinglong-termeconomicgrowththroughthecontinuoustransferofknowledgethataccompaniesFDI.Asanexternality,thistransferofknowledgewilltakeintoaccountnon-decreasingreturnsthatleadtolong-termgrowth.Consequently,iftheelementsofgrowth,5 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIencompassingFDI,areconsideredendogenousintheeconometricmodel,thelong-runeffectofFDIwouldfollow.Therefore,aprecisechannelthroughwhichtechnologyflowfromadvancednationstolaggingnationsistheflowofFDI.FDIsubsidizesnotonlytoeconomicgrowthviacapitalformationandtechnologyallocation,butsimilarlybycumulativetheleveloffamiliaritythroughvocationaltrainingandexpertiseacquisition.Conferringtotheendogenousgrowththeory,threecorechannelscanbenoticedthroughwhichFDIimpactsgrowth.First,FDIupsurgescapitalaccumulationinthedomesticcountrybypresentingnewideasandskills.Second,itpromotesthelevelofknowhowandexpertiseinthedomesticcountryviatrainingofworkersandadministrators.Third,FDIintensifiescompetitioninthelocalcountry'sindustrybyoverpoweringobstaclestoentryanddecreasingthemarketpowerofprevailingfirms.ThetheoryofendogenousgrowtharguesthatFDIhasaconstructiveeffectoneconomicgrowth,althoughtheunpredictabilityofFDIflowsoftenhasundesirableeffectsongrowthoreconomicdevelopment.ThetheorystatesthatFDIcertainlyaffectgrowthbydepressingthecostofresearchanddevelopmentbyinspiringinnovation.Ifforeigndirectinvestmentinfluxesareindeterminate,thecostofresearchareundefined,whichnegativelyaffectincentivetoinnovate.Thus,theinstabilityofforeigndirectinvestmentweakensinvestmentandadverselyinfluencesGDPgrowth.2.1.2.InvestmentDevelopmentPathModelConsistentwiththeeclecticparadigm,Dunning,1981modeledtheDevelopmentPath(IDP)alongRostow'sgrowthstageswhereeconomiesatvariousstagesofgrowthdescribedifferentOLIbenefitconfigurationsastheyundergoauniqueblendofconditionspolitical,culturalandeconomic.Accordingto(FonsecaMiguel2007),FDIisdevelopingthroughatrajectoryenlightenedbytheinteractionsbetweenthelevelofeconomicgrowthandNOI(thenetinvestmentpositionabroad).(KyrkilisandMoudatsu2011)notethattheIDPisidiosyncraticinnature,thatis,thepathiscountry-specificandisinfluencedby:thelevelandnatureofnaturalresourceendowment;marketsize;natureoftheeconomicsystem(exportorientationorimportsubstitution)andmacroeconomicpolicyenvironment(governmentpolicies,marketmechanisms).Economiesintheearlyphaseofeconomicdevelopmenthavenegativepositionsintermsoflocationandownershipandaregenerallycharacterizedbyinsufficientlevelsofcapitalaccumulation,percapitaincome,markets,infrastructureandlabor.TheattractivenessofthecountryasadestinationforFDIandtheabilityoflocalbusinessestoengageininternationalproduction.Atthisstageofpre-industrialization,resource-richcountriescanattractFDIthatisbasedonthesearchfornaturalresources.FDIinflowsbegininthesecondstagewhenacountryexploitsthelocationalbenefitsofindustrialization,infrastructuredevelopment,capitalaccumulation,increaseddomesticdemand,productivityandhumancapabilities.TheNoticeofIntentremainsnegativeaslocalbusinesses6 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIcannotexploitthebenefitsofownershiptotriggeroutwardFDI,althoughexportsoflabor-intensiveandlow-technologygoodsmayoccur.Theeconomiesofthethirdphase(mainlyemergingeconomies)areshowingagrowingpositionintermsofunemploymentinsuranceclaimsasFDIgoesoutandFDIinflowsgraduallyslowdown.Improvedincomelevelsleadtoincreaseddemandforhigherqualityproducts.Higherwagelevelserodelowlaborcosts,deterlocalinvestmentandleadtoprojectsabroadwherelaborcostsarelower;whiletechnologicalprogressencouragestheintensivemanufactureofhomogeneousmerchandises.InwardFDIisbecomingmoreandmoreefficientandlowwagesarenolongerthemainmotivation.RegionaleconomicintegrationmakesitpossibletolocatethedifferentphasesofproductionintheconstituentstatesaccordingtotheircomparativelocationadvantagesandhencetheinfluxofFDItostateswithsuchbenefits.Thepositionofeconomiesispositiveinthefourthstage,aslocalfirmsgainownershipadvantagessimilartothoseenjoyedbyforeignfirms,eventhoughtheystilllackinformation-intensivetechnologies.Governments,throughtheirpolicies,areworkingtoreducetransactioncosts,regulatemarkets,andfocusmoreonthebenefitsoflocationthanontechnologyandskillaccumulation.OutwardFDI(efficiencyandstrategicassetsseekingFDI)inStage5duetocross-borderproductionandtradeascountriesincreasinglyengageinknowledgeproduction,high-intensitytechnologiesinformation,organizedmarketsandmotivatedFDIwhencountriesconverge.2.1.3.Theoryofcapital(Mundell1957)Inwhathasbeendubbedthetheoryofcapitalempiricallyobservedthat(US)firmschosetoinvestabroadiftheycouldobtainhigherratesofreturn.Thetheoryisthereforebasedondifferencesinratesofreturnbetweencountries.Thistheory,however,hadsomeshortcomingsinthefactthattwo-wayflowsofFDIcouldbeobservedbetweentwocountries(Hymer1976).2.1.4.SelectedgrowththeoriesAccordingto(TodaroandSmith2010),thetheorizationofpostwareconomicdevelopment(WorldWarII)revolvesaroundfourschoolsofthought:thelineargrowthmodel;modelsofstructuralchange;internationalmodelsofdependency;andthecounter-revolutionofthefreemarket.Linearmodelsconsidereconomicdevelopmentasaseriesofgrowthstagesexperiencedbyalleconomies.Theseriesisinformedbydifferentendowmentsofsavingsandinvestment.(Rostow,1960)havearguedthateconomiesgothroughsequentialbutdistinctstagesofdevelopmentandthatallsocietiesfallintooneoffivestages.Economiesatthetraditional(pre-Newtonian)stagelimitlevelsofproductivepotentialduetoinsufficientorinsufficientapplicationofscienceandtechnology,whilethoseinthesecondphase(pre-conditionsattakeoff)embracemodernscienceexpandingchoicebenefitsfromtheirinteractionwithmoreadvanced7 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIeconomies.Thetake-offphaseseesarapidexpansionofindustries,profitability,andreinvestmentofprofits,increasedrevenuelevelsandtheadoptionoftechnology.Leadtomaturitywhereeconomiesparticipateininternationalmarketsandwherelocalcapacities(production,technologyortrade)increasethestageofmaturitywhereattentionisnowturningtodurablegoods.Theoriesofstructuralchange(Lewis,1955)prescribeareorganizationofinternalprocesses(economies,industrialandinstitutionalstructures)sothatdevelopingcountriescanmovetodevelopedcountrystatusandsupporteconomicgrowth.Inhistwo-sectormodel,Lewissawlabormobilityfromthesurplusagriculturallaborsectortothehighlyproductivemodernsector,influencedbyinvestmentandcapitalaccumulation.Thesectorisnotonlymoreprofitable(andthereforereinvestmentispossible)butitalsohashigherwageratesthatleadtosavingsandmoreinvestmentandthustoeconomicgrowth.2.2.EmpiricalReviewTheempiricalreviewcoversdatafromafewstudiesdealingwiththeimpactofFDIoneconomicgrowthinMaliandinternationally.2.2.1InternationalevidenceBlomstrometal.(1998)intheirstudiesfoundthatFDIpositivelyimpactedeconomicgrowth;however,incomethresholdexitedbeyondwhichFDIhadadditionalinfluenceoneconomicgrowth.Onexplainingtheabovescenario,theysuggestedthat,whencountriesreachedadefinedlevelofincomethresholdtheyabsorbexpertiseandbenefitfromdiffusionoftechnology.DeMello(1999)inanotherstudydescribedthat,theinteractionofFDIandcountrieshumancapitalhasavitalinfluenceoneconomicgrowth;thisconditionenlightensusonthedifferencesinwhichdifferentcountiesabsorbtechnologicalcapacity.FromGregorio(2003)inhiscontributiononFDI,henotedthatFDIcanenableacountrytobringtechnologiesandknowledgethatarenoteasilyaccessibletodomesticfinanciers,thusgrowingproductionintheeconomy.FDIsimilarlyofferskillsandexpertisethatacountryislacking,butcanbeaccessedbyforeigninvestorsininternationalmarket.DeGregorioexposedthat,increaseincumulativeinvestmentbyamarginof1percentagepoint,thisstimulatesGDPofLatinAmericaby0.1to0.2%inagivenyear,similarly,theriseinFDIaugmentthegrowthby0.6%peryear.Foreigndirectinvestmentisconsideredtohaveapositiveinfluenceontheeconomicgrowthofdevelopingeconomies;howeverthecapacityofimpactisdeterminedbytheconditionsandfeaturesofthedomesticcountry,BengoaandSanchez-Robes(2003).Inacomparablestudy,Johnson(2005),usedpaneldatatoevaluateinfluenceofFDI,inthisstudyhefoundthatforeigndirectinvestmentaugmentseconomicgrowthindevelopingnationsbutnotindevelopedeconomies.8 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIInaddition,LiandLiu(2005)scrutinizedwhetherFDIinfluencestheeconomicgrowthforhosteconomy.Datafrom84countriesstarting1970to1999wasused,similarlysimpleandsimultaneousequationmodellingtechniquewasemployedtotesttheFDItoeconomicgrowthnexus.Inordertoobtainthedesiredresult,theendogeneityistestedusingtheDurbin-Wu-Hausmantest(DWH)andtheresultofthesampleissignificantbecausethetotalendogeneityisnotsignificantbutwhentheperiodisdividedbetween1985and1999andgrossdomesticproduct(GDP).Inaddition,PhillipsPerron(PP)wasusedintestingthestationarityofvariablesandthevariableswerefoundstationary.ThisresearchsuggestedastrongharmonizinglinkamongstFDIandcountries'economicgrowth.InastudyconductedbyIlhan(2007)onover50empiricalsurveysoftherelationshipbetweenFDIandeconomicgrowth,40ofthesestudiesshowedapositiverelationshipwithonly2negativereportsandtherestshowingnoeffect.ThisempiricalevidenceindicatesthatmostFDIisassociatedwithgrowth.Inaddition,Lumbila(2005)testsahypothesisifFDIhasaglobaleffectoneconomicgrowthandresultsrevealedastatisticallysignificantdifferencethata10%increaseinFDIcanresultinagrowthof0.34%.Inaddition,FeridunandSissoko(2006)scrutinizedwhetherFDIinfluencestheeconomicgrowthforhosteconomy.Datastarting1976-2002inSingaporewasused,similarlyGrangercausalityandAutomaticVectorRegression(VAR)modellingtechniquewasemployedtotesttheFDItoeconomicgrowthnexus.Unidirectionalcausalitywasobservedinthisresearch.Opolotetal.(2008)inhisresearchobservedthatinfrastructure,potentialmarket,opennesstotrade,urbanizationandinvestmentrateofreturnpositivelyimpactsforeigndirectinvestmentinsub-SaharanAfricaarea,similarly,macroeconomicunpredictabilitywasdetectedtobeavitalfactordepressingforeigndirectinvestment.Theresearchcontrolvariablessuchaspublicconsumption,fiscaldevelopment,countries’naturalresources,expenditureonwagesandpoliticalrightwereallconsideredinsignificant.2.2.2LocalEvidenceDevelopingcountriesgenerallyandMaliinparticularseemtoappreciatethepositiveroleFDIintheeconomicgrowthdiscourse.Theycommitthemselvestogreateffortstoattract,maintainandexploittheflowofforeigncapital.thereportsindicatedthatglobalFDIinflowsincreasedfromaroundUS$55billionin1980toaroundUS$1.4trillionin2000(UNCTAD2005).ThisenquiryisthereforemotivatedbytheobservedincreasedlevelofimportanceplacedontheroleofFDI,theincreasedvolumesofin-boundFDIandthevariouseffortsthatMalihasputinplacetoattractFDIbeitinmacro-economicstabilization,legislationandothereffortstoimprovethebusinessclimate.Asnotedby(KyrkilisandMoudatsu2011),FDIimpactspositivelyoneconomicgrowthalthoughGranger-causalitybetweenthetwovariableshasnotbeenexploredcomprehensively.(AlbertWijeweera2010)agreesaboutthepositiveFDI-economicgrowthpropositionbutcautionsthatexistingevidenceonthisnexusdoesnoteliminateuncertainty.Accordingto9 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI(Sumner2005),themixedfindingsarisepossiblyfromdifferencesinanalyticalmethodsandconceptualfactors,including:differencesinpolicyenvironments;FDIcharacteristicsandhostcountryfactors;datacomparabilitychallengesanddifferentmethodologiesappliedinvariousstudies.Theneedtoempiricallyunderstandtheeconomicgrowth-FDIinflowsnexusinhostcountriesisthereforeinevitable.2.2.3.MotivationandtypesofFDIDifferentmotivesofforeigninvestmentsimpactsdirectlyonthespilloversandincomeeffectsofFDI(Dunning1992).(Resmini2000)differentiatedFDIaseithermarket;naturalresource;orefficiencyseekingandobservedthatmostforeigninvestorshaveamarket-seekingmotive.Accordingto(Dunning1992),abundantrawmaterialsandlabourarethegreatestattractionofnaturalresourceseekingFDI;whileproximitytomarkets,customerrelations,followcustomers,networkbuilding,productadaptationattractmarketseekers.Efficiencyseekersaremotivatedbyabundanceofskilledlabouratcompetitivewagerates,economiesofscale(KyrkilisandMoudatsu2011),synergiesofre-organization,thatis,verticalandhorizontalintegrationandchangesinproductmandates.StrategicassetseekingFDIentailsacquisitionoffirmspecificassetsassociatedwithR&D,networksandbranding.(Sumner2005)cautionsthatresource(rawmaterial)seekingFDIhavelowlinkageswithothersectors,resulttolowtechnologicalandknowledgetransfersandthereforeleadtofewemploymentopportunitiesandfewlocalspillovers.Market-accessFDIcreatesemploymentinthelocalmarketsandsourcingdirectlyfromthelocalmarketswhileefficiency(export-platform)seekingFDIleadtobenefitsassociatedtoexporttrade(Varblane1999)butmaylackforwardandbackwardlinkagesinthelocaleconomiesaccordingto(Chang2003).HowFDIisattractedtothehosteconomiesseemtohaveramificationstotheeffectivenessintheeconomy.Accordingto(TobinandKosack2006),seriouseconomicdistortionsmayresultfromahostcountry’sattemptstoattractFDIbygrantingforeignfirmsdisproportionateadvantagesasthismakesdomesticfirmsuncompetitiveleadingtolossofindigenousenterprisewhiletaxincentivesdenygovernmentstaxrevenues,heavilysubsidizedFDIcrowds-outdomesticinvestmentorendupattractinginappropriate(inefficient)formsofFDI.(Jensen2006)cautionsagainstuseofconcessionalincentivestoattractinwardsFDIasthisusuallynets-offthepositivedirecteffectsofFDI.(Carstensen2004)criticizedincentivemarketingbecauseinmostcases,thehostcountriesaretypicallymuchpoorerthanthemothercountriestoMNCswhichwereaccusedinthe1970sofrepatriationofprofitanduncompetitivebehaviorsbyscholarssuchas(DosSantos1970).Accordingto(Sumner2005),mostFDIentersasequitywhiletheremainderfluctuatesbetweenintra-companyloans,reinvestedprofitsandcross-bordermergersandacquisitions.(UNCTAD1991)seesthemainsourceofFDIflowsasTNCsdomiciledintheEU,USA,andJapan.(TheWorldBank2003)estimatedthatatleast60percentofglobalFDIoutflowsin2001camefrom10 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIthe'FDITriad’butnotedthatSouth-SouthFDIwasontherisingtrendfrom16percent(1995)toarounda30percent(1999).2.2.4.CausalitybetweenFDIandEconomicGrowthDifferentresearchstudieshaveshowndiverseresultsaboutthenatureanddegreeofcausalityamongthesetwovariables.(KyrkilisandMoudatsu2011),seesthelinkaspathdependentandcountry-specificsubjecttoidiosyncraticconditionofindividualeconomies.(Choe2003)inhisresearchobservedatwo-waylinkbetweenthetworesearchvariablesandaweakdirectionalcausalityforFDItogrowth.Similarresultswerearrivedatby:(HansenandRand2004)fromasampleof31developingcountries;(Al-irianiM.2007)fromastudyof6GulfCooperationcountries.Fromhistestswhichwerebasedonerrorcorrectionmodelfor11countriesusingtimeseriesdata,(Zhang2001)establishedastronglinkbetweenthetwoexplanatoryvariableswhile(Chowdhury2006)failedtofindasufficientevidencetosupporthisstudyoncausationinChileeconomy,howevertwo-waycausationwasobservedinMalaysiaandThailand.(DeMello1999),usedtimeseriesondatafor32economies(17non-OECD)inthisresearchhefoundthelinktodifferredacrosscountries.Inhisresearchpaneldatamodellingindicatednolinkinthenon-OECDeconomies.Similarresearchesthatcomeintoconclusionhavingsameare:(Nair-ReichertandWeinhold2001)inwhichthisstudiesMixedFixedandRandom(MFR)for24economiesinyear1971to1995.Panelstudyfor80countries,KyrkilisandMoudatsu2011signaledthatcausalitylinkbetweenthetwovariablesvariedbyindividualcountrieswereconsideredbesidesgeneralizedcondition.Otherscholarslike(LiargovasandAngelopoulou2014)foundnocausalitybetweenthetwovariablesfrompanelstudyof20EU,EMUmember-nations,andcountriesintransitioninyears1989to2008.Similarresultswereobtainedby(Jensen2006);(CarkovicandLevine2002),fromastudyofseventy-twocountriesbetween1960and1995;(ShabbirandNaveed2006)fromapanelstudyof23developingcountriesbetween1970-2001;(LyroudiK.2004)fromhisBayesiananalysisonpaneldataofasampleoftransitioneconomiesfrom1995to1998;and(TobinandKosack2006)whosestudyconcludethatFDInegativelyaffectedgrowthofknowhowindevelopingcountries.2.2.5.ImpactsofFDIWhileneo-classicalgrowthmodelspostulatethatimpactofFDIongrowthisonlyshort-term,(Brems1970);(JLee1998)suggestthattheincreasedcapitalstockasaugmentedbyinwardsFDIcorrectstheshort-termdiminishingreturnstocapitalthroughlabourtraining,skillacquisitionandtechnologicalspill-oversandthushosteconomiesaresustainedalongalong-termgrowthpath.Bornschier1980)inhisresearchheconcludedthatFDI-augmentinshortrun,howeveranegativeinfluencewasrecordedinthelongrun.Endogenousgrowthmodelscorrect11 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIthisbyviewingFDIasavehiclefortechnologyandknowledgetransferwhosepositiveexternalitiesandproductivespillovershavelong-runeffectongrowth(Barro1995)(DeMello1997)seeFDIaskeyinaddressinginsufficiencyofcapitalandproductivityinmanydevelopingeconomiesasitresultstoallocativeefficiencies,knowledgeandtechnologytransfers,diversificationofrisks.(PolpatKotrajaras2011)notesthatFDIasamodeoffinancingremainsprominentoverothertypesofcapitalflowsinEastAsiancountries.Followingthe1988debtcrisis,(Sumner2005)notesthatthecapitalpositionfordevelopingcountriesfaceinsufficiencyofresourcestofinancedevelopmentisworsenedascommercialbankloaningdriedupandaidfell.Therefore,FDIwasincreasinglyviewedasapanaceatothesecapitalproblemsandeconomiestookdeliberateeffortstoattractit(TobinandKosack2006)FDIcontributeseconomicgrowthdirectlythroughfinancingofdevelopmentinitiatives,andindirectlythroughknowledgeandtechnologytransfers(LiargovasandAngelopoulou2014).Accordingto(DeMello1997)inwardsFDIenhancetheadoptionofnewproductsandproductiontechniquesinthehosteconomy(technologicalspill-overs),stimulateknowledgetransfers,(humanresourcetraining)andintroducesuperiormanagerialcapacities.Accordingto(KyrkilisandMoudatsu2011),higherqualityrequirementsfortheintermediateinputspurchasedfromthelocalmanufacturers,economiesofscale,improvedcompetitivenessofdomesticdownstreamindustriesandtheentryofnewproducersarethemainmechanismsthroughwhichtechnologyistransferredamongsteconomies.Accordingto(Wijeweera2010),FDIleadtechnologycapacitydevelopmentandnarrowsthesavingsdeficitsdifferencebetweensavingsmobilizedlocallyandtherequiredsavings.Inaddition,interactionbetweendomesticandforeignfirmsresultstoproductivityspillovers(Blomstrom1983)and(Kokko1994)becausetheyenjoyhighervalueaddition(Willmore1986).Withtheentryandoperationofmultinationalfirms'localaffiliates,competitionincreasesandthispusheslocalfirmstoimproveefficiencywhiletechnologyandknow-howaresharedthroughbusinesstransactions,imitationandhiringworkerstrainedbyMNCs(ShabbirandNaveed2006)and(TobinandKosack2006).Moreover,MNCsindirectlyopenuphosteconomiestotheglobaleconomythroughexporttradeandimprovementofinfrastructureandbusinessenvironment(Mwega2009).This,inturn,mayresulttoeconomicintegrationwhichaccordingto(LiargovasandAngelopoulou2014),leadtonotonlyenhancedcoordinationofthemembercountry’stradepoliciesandpartsoftheireconomicandfiscalpoliciesbutalsogeneratesopportunitiesforinternalefficiencyandeconomicstabilitywhichfurtherstimulatesFDI.Atfirmlevel,FDIleadstoimprovedlabourproductivityandtotalfactorproductivityasMNCsintroducefirm-specificassetsandknowledge(Dunning1992).(UNCTAD2000).TheirimpactmaybemaximizedifFDIintakeisgradual(Desmet2004)andiftheyareextendedbeyondtheshorttermhorizon(Konings2001).12 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI2.2.6.ConditionsaffectingFDIimpactsonEconomicGrowthAccordingto(AlbertWijeweera2010)and(Ellingstad1997),thehosteconomymustmeetathresholdofinitialeconomicsituationsastheyeffectthemacroeconomicoutcomesofcapitalinflows.ImpactsofFDIareonlyevidentineconomieswhichhaveattainedsignificantdevelopmentlevelsfor:education,infrastructure,financialdevelopment,(Kotrajaras2011).(PrasadE2006)agreesthathosteconomieswillreapbettergrowthandstabilitybenefitsfromFDIiftheirfinancialmarketsandothergovernanceinstitutionsaredeveloped,andhaveappropriatemacro-policies.Fromhisstudyofsixty-ninedevelopingcountriesbetween1970and1989,(JLee1998)concludedthatthelevelofhumancapitaldevelopmentpositivelyaffectsFDI.Accordingto(TobinandKosack2006),humandevelopmentpositivelyinfluencestheorganizationalcapacitytoadoptnewtechnologies,productionfunctions,andeconomicoutputs.Asufficientandhighlyeducatedlabourforce(DeMello1997);goodinfrastructurefacilities(Balasubramanyam1996);sufficientlydevelopedfinancialmarkets/systems(Hermes2003),(AlfaroL.2004);andhighpercapitaincomesofthehosteconomy(Blomström1994)contributetothepositivegrowtheffectofFDIspillovers.HostcountrieswhichareopentointernationaltradereapbetterfromFDI.(Balasubramanyam1996)studied46economiesandconcludedthatFDIimpactspositivelyongrowthincountrieswhichembraceexport-orientationastradeenhancestransferofbenefitsandtechnology.(LevinandRaut1997)corroboratethisviewintheirstudyof30semi-industrializeddevelopingcountriesfromwhichtheyfoundoutthathighdegreeoftradeandeducationexpenditurewerenecessaryconditionsifFDIwastoinfluencegrowthofrecipientcountries.Accordingto(Adeolu2007),FDI-inducedgrowthisevidentineconomiesopentotradeandhaveadevelopedlabourforce.Infact,(ShabbirandNaveed2006)attributesdiffusionoftechnologytoproductimports,adoptionoftechnology,superiororganizationpracticesandhumancapitaldevelopmentorwhat(Findlay1978)calledthe"contagion"effectofFDI.Indeed,(SahooDukhabandhu2006)attributeChina’seconomicreformsthatopenedittotheworldeconomyin1979tothereportedincreaseininwardsFDIfrom5billionUSdollarsto37billioninadecade.Closelyrelatedtothetradeopenness,thelevelofahostcountry’sintegrationwithothereconomiesintoregionalblockshasanimpacttothedegreeofFDIflows.(LiargovasandAngelopoulou2014)concludedthatthedegreeofeconomicintegrationofthereceivingeconomywithothereconomiesaffectthedeterminantsofforeigninvestments.Inparticular,theyobservedthatinthemostintegratedcountries(EuropeanMonetaryUnionmembercountriesintheircase)FDIinflowsaretriggeredbyincreaseinresearchactivitiesandexpenditureindevelopmentofnewproductsandtechnologiesofproduction.Accordingtotheirstudy,increasesintariffstriggerFDIinflowsinthelessintegratedcountries(EuropeanUnionmembercountries).InCountriesthathavelowornolevelsofintegration,inthiscasethosethataretransitingatvariouslevelsofeconomicdevelopment,FDIinflowsareattractedmainlythroughincreasesinlevelsoflocalcapitalaccumulation,productinnovationanddevelopmentaswellasbyafallin13 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIthelevelsofinflation.Accordingto(KyrkilisandMoudatsu2011),integrationleadstoconvergenceofeconomiestowardsthesamegrowthpath,economicstructuresandpoliciesandmostimportantly,increasesmarketsize.Thisattractsefficiencyseekingforeigninvestorswhoarekeenontappingintegrationbenefitsincludingcoordinatedproductionandsupplychainfunctions.Thelevelofhostcountry’sdevelopmenthasabearingontheFDIeffectsongrowth.(Blonigen2005);and(Strout1996)concludedthatgrowthimpactsofFDIaremorepronouncedindevelopingcountrieswhichhaveasufficientskillbase.This,however,wasnotthecasefordevelopedcountries.Thisviewiscorroboratedby(Johnson2006)whoassertsthatFDIcorrectslowproductivityandcapitalstockdeficienciesindevelopingeconomies.Accordingto(Blomström2001),mostdevelopingeconomiesdependstronglyonforeigncapitalwithlittleornohostgovernment’sefforttoaugmentFDI’scontributiontoeconomicaffluence.Thisviewiscontradictedby(Sumner2005),whofeelsthatthegrowthbenefitfrominwardsFDIismoreexplicitindevelopedeconomiesastheirsupplychainsandhumanresourcecapacitiesaremoredeveloped.UnderstandingthepeculiarcharacteristicsofeconomiesatvariousstagesofdevelopmentisnecessaryininstitutingpolicyrecommendationsthathaveanimpactontheefficiencyofFDIthroughoutconversion(Jensen2006).Intheearlystagesofdevelopment,thatJensenchristenedtheliberalizationandstabilizationstages,hyperinflationandnegativeeconomicgrowth,uncertaintyinpropertyrightsandtheruleoflaw,(Meyer1995)andtypicallyunderdevelopedlegal,foreignexchangeandtradeenvironments(Bevan2004)hamperinwardsFDI.ThesecondstageentailstheStateoffloadingitscontrolinStateCorporationsthroughprivatizationandthisenablesdirectparticipationofforeigncapitalinthehosteconomytherebyofferingalocalmarket-entryopportunity(Jensen2006).Inthethirdstage,transitioncountriesemployaraftofincentiveslike:preferentialtaxtreatment,negotiatedincentives,establishmentofSpecialEconomicZonesorindustrialparkstoattractFDIingreen-fieldinvestmentinwhatJensen2005termedaslocationmarketing.Accordingto(Bissinger2012),impactsofFDIareinfluencedbythesourceandthereceivingsectorofforeigninvestments,thelinkagestheycreatewithothersectorsoftheeconomy,theirjobcreationcapacity,andthehostcountry'seconomicpolicies.Specifically,FDIintheextractiveandpowersectorsmaynotyieldmanyspilloversastheyarenotascompetitiveandmobileasothersectorsandareproneto“resourcecurse”,wherediscoveryofresourcesprovidenewincentivesforcorruptandrent-seekingbehaviorand“Dutchdisease”,wherethecurrencyappreciatesandimpactsnegativelyoncompetitivenessofotherinternationallytradablesectorssuchasmanufacturing.(WalshandJiangyan2010)notedthattheFDIintotheprimarysectorforms“enclaveinvestments",whichhave"littleconnectiontothebroadermacroeconomy".(Sayek2005),usedcrosssectionOLSamong37countriesbetween1990and2002,andfoundthatpositiveimpactsaroseonlyinmanufacturingsector,butnotforservicesector.(Alfaro2003)foundthatonlyFDIinmanufacturingsectorwasbeneficialinthegrowthcontextwhile14 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIinvestmentsinprimarysectorhadanegativeeffectongrowthandinvestmentinserviceshadambiguousresults.(TobinandKosack2006)relatethesuccess(orotherwise)ofinwardFDItotypeofinvestmentsreceivedandthehostcountry’scapacitytoextracttheinvestment'sbenefitsbothofwhichareinfluencedbytheleveloflabourforceskillcapacity,technologyabsorptionandwagelevelsprevailinginthehostcountry.Infact,asnotedby(Weisskopf1972),intheearlierstagesofdevelopment,FDIinflowstodevelopingcountriesaremainlydirectedtotheextractivesector,whoseproductstypicallyfetchlessmarketpricesandvalueaddition.Tothisend,(Sumner2005),cautionsthatthatsuchinvestments(intheprimarysector)wouldworseninequalitystatusoftheseeconomies.(KyrkilisandMoudatsu2011)concludedthat,theimpactofinwardsFDIwillbelimitedineconomieswithlowlevelsoftechnology.Thehostcountry’sinstitutional,policyandgovernanceclimatedeterminethereceivingcountry’sattractivenesstowardsforeigncapital,andsustainabilityofapplicationofsuchcapitalandthespilloversthatcomewithFDI.Assuch,(Sumner2005)seethehostnation’sFDIpolicyregime-forexample,reinvestment-profitrepatriationrequirements,andexportthresholdrequirements,reservationrequirements(aboutlocalemploymentandlocallysourcedsupplies)asimpactingdirectlytothegrowthenhancingspillovereffectsofFDI.ObservingthatFDIappearstoimpactmoreprominentlyintightFDIpolicyregimes,herecommendsthatexpresslocalforeigncollaborationrequirementsandcapitalcontrolsmaybenecessaryifgrowthbenefitsweretoberealizedfromforeigninvestments.Accordingto(Bissinger2012),poorinvestmentclimate,exemplifiedby:corruptpractices;arbitrarypolicy-making;unjustcommodity,financialandpropertymarketscontrols;andaweaklegalsystemlimitthespill-overeffectsofforeigninvestments.Fromtheresearchof45economiesforyear1997to2004usingStochasticFrontiermodelling,(AlbertWijeweera2010)foundthatcorruptionimpactsnegativelyoneconomicgrowth.(Chang1994)emphasizedontheimportanceofgovernment’sregulatoryroleasthisdeterminestheacceptanceconditionsofin-boundFDI.Infact,(Sumner2005),attributedtheincreaseforeigninvestmentactivitiesfrom1980sthroughtotheturnofthetwenty-firstcenturytoadoptionofmoreFDIaccommodatingpolicies,includingopeningupthedomesticmarketsanddeliberatefiscalconcessionsandsubventions.(Hanson2001)observedthatbetween1998and2001,atotalof103economiespreferentiallytreatedforeigninvestorsbyofferingthemfiscalincentivesandexemptions.Accordingto(UNCTAD2003),amongstthe70countrieswhichliberalizedtheirpoliciestowardsFDIin2002,amajority(236outof248)ofchangesininvestmentregulationswerebeneficialtoFDI,resultinglargelytoanincreaseinsignedinternationalinvestmentagreements.(Sumner2005)cautionsagainstofferingexcessivefiscalincentivesandpreferentialtreatmentofFDIasthisweakensgovernmentaccounts.15 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI2.3SummaryoftheliteraturereviewThemainobservationfromthisreviewisthatthereseemstoexistarelationshipbetweenFDIandgrowth.Thisrelationship,however,appeartovaryfromcountrytocountryandtherefore,countriesneedtobecautiouswiththestrategiestheyemploytoattractinwardsFDI.Aspointedoutby(Jensen2006),FDIformsapartofeverythingthatinfluenceseconomicgrowthandassuch,wemaynotsimplifyandsingleoutthegrowtheffectsofFDIfromtheNationalAccounts.Inprinciple,therefore,studiesaboutFDI-inducedgrowthshouldextendtheirscopetobeyonddirectattributionofFDItocapturetheaggregategrowtheffectsofotherfactorssuchasprevailingmacro-economicconditions,governance,legal,policyregimesandotherinterventionssoughttospureconomicgrowth.16 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIChapterⅢ:TrendsAnalysisofForeignDirectInvestmentandothersvariablesinMali3.1ProfileofMaliTheMaliisacountryofWestAfrica,waswellknownastheFrenchSudanbeforeindependence1960anditsborderwithMauritania,Senegal,Côted'Ivoire,Guinea,BurkinaFaso,Niger,Algeria.Maliisclassifiedasupper-middle-incomecountrywith18.3millionofpopulation.Althoughthepopulationdimensionsaresmall,thecountrystillhasahigherinequalityofincomebetweenthepoorpeopleandrichpeople,withaGinimeasurementof1.88%.Thecountrysurfacesanenormouswholeareaof1238141km2andabout1200kmofcoastline.TheMaliisendowedwithrichnaturalresources.Despitethebigquantityofnaturalresources,thecountry(Mali)hasconditionsandlackofwater;itisverydifficultforcropsandabigamountofthepopulationareimplicatinginsubsistencefarmingandlivestockfarming;thecountryremainspoorandmorethan42.7%arepoorpeopleaccordingby(WorldBank2016).Asaresult,thecountryimportsabout50%ofcerealsbecauseofdroughtandtherecentfoodshortageinMaliisreallyamajorproblemlikeinthenorthernregionsofMaliwherealargepartisdesert.TheMalihasaleast110,000skilledworkers,7%ofwhomworkintheminingsector.Nevertheless,duetotheweaknessoftheopeneconomy,theMaliishighlydependentonmining,theseaccounts6percentofGrossDomesticProduct(GDP)growthandhasmadeavailablethecountrywithnearly50percentofoverseasexchangeearnings.Malilookonwardtobetheprincipalsourceofqualitygoldinrichtermsalluvialgold,Maliisalsotheworld's16thlargestrdproducerofgoldand3inAfricaafterSouthAfricaandGhanainaddition,itproduceslargequantitiesofcotton,goldandsilverotherminerals.TheMalihasarecenttimemarketsectorthatproduceslargepartofthecountry’swealth.TheexchangemoneyinMaliiscalledtheCFAFranc.Inaddition,Mali'seconomyisthoroughlylinkedtoWestAfrica,wheretheMaliancurrencyiscurrentlylinkedtoFrancelikeallWestAfricacountry.Afterindependence,theMaliregimefollowedtheconceptofthefreemarkettostimulatecommercialdevelopment.Jobcreationtobringdisadvantagedcitizensintothenaturaleconomic.GiventhatMaliisstrivingtogetthetargetsofexportingatleastsemi-finishedgoodsratherthanexportingproductsinprimaryform,thisstudyisessentialasthenationismovingtowardstheachievementofitsaimsdream.MaliisrecognizedforitslargevolumeofimportsfromneighboringCoted'Ivoire.Thisassumesamajorgovernmentconcernsimplybecauseimportsoutweighexports;thuscausingthedeficitofthetradebalance.Asaresult,theregimehasplacemeansandmeanstoarouseeconomicdevelopmentthroughthe(EPZ)ExportProcessingZoneandquotasbyencouragingtheexportofgoods.Quotasaregrantedtoproducessomuchasmilk,socompaniesonlyhastoimportsomeamountofmilkcartons,whichencouragestheconsumptionofMalianmilkandothergoodsanddecreaseimportationsoftheseproducts.Freezoneenterprisesareonlyallowedtoimportuncookedprovisionsandequipmentthatcanbeusedfortheprocessingandmanufactureof17 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIgoods.Forlaw,companiesmustprocessandmanufacturetheproductforexport,atleast70%oftheirmanufactureshouldbedistributedinforeignmarketandonly30%oftheproductioncanbesoldonthenationalmarket.TheEPZregimeaimsto:ImprovethevariationofthenativeeconomyStimulatetheimprovementofinternationalcapitalimports,technologytransmissionandskillsupgradingforthelocalworkforce.Increasetheinputoftheindustrialareatojobcreation3.2ForeignDirectInvestmentinMaliIndependentMalihasalonghistorywithprivateforeigncapitalinflows.Soonafterindependence,SessionalPaperNo.10onAfricanSocialismanditsApplicationtoPlanninginMali(RepublicofMali1965),albeitreluctantly,tookcognizanceofthepartplayedbyoverseasinvestmentsinthecountry'sdevelopmentprogram.ItadvocatedformutualresponsibilitywhichincludedavailingsharestoAfricans,employingqualifiedAfricansinmanagementandprovidingtrainingtothem.TheSessionalPaperfurtheracknowledgesshortageofdomesticcapitalandseescapitalfromabroadasapanaceatotheshortage,atleastintheshorttermbutrecommendsincreasedlocalinvestmentswithlegallycompelledinvestmentathometofullyfinancedevelopmentneedsofthecountry.(Kumar,andGarrido2010)notethatMali’sinvestmentwasonatrenddeclineuntilabout1995touchingpost-independencelowsin1992(10.4percentageGDP)duetoinsufficientorstagnatedcommunityandprivateinvestment.However,successiveCountrywideDevelopmentIdeasforMalihaveplacedahighpremiumonforeigninvestmentsasregardsthecountry’sdevelopmentaspirations.TheNationalDevelopmentPlan,1997-2001(RepublicofMali1996)emphasizestheneedtoexpandandmodernizetheexistingindustriesandattractionofnewinvestmentsinlightmanufacturingandresourcebasedindustriestoadvancethelivingstandardsandgenerateemploymentchancesofMalian’s.Theplannotesthatnotonlywasthenation’sGrossFixedCapitalFormation(GFCF)onadeclinei.e.17percentageGDPintheearly1990scomparedto31percentageand21percentageinthe1970sand1980srespectivelypartlyattributedtoherpastinwardorientedeconomicpolicieswhichledtothegrowthofaninefficientanduncompetitivemanufacturingsectormajorlycharacterizedbyunderdevelopedintermediateandcapitalgoodsindustries(andthusheavydependenceonimportedintermediateeffortsandmachinery),andinsufficientdomesticlinkages.Theplanthereforerecommendsdeliberateeffortstoenhanceinvestmentsandsavingstotheregionof25-30percentageGDPthroughsufficientmobilizationoflocalinvestmentsandtappingofoverseasinvestmentsthroughthepromotionofdirectforeigninvestments.Torealizethisaspiration,theinvestmentenvironmentneedstoimprovei.e.politicalstability,developedandmaintainedinfrastructure,skilledlabor,wellestablishedbankingandfinancialnetwork,efficientcivilserviceandattractiveinvestmentincentives.Aroundthisplanperiod,Malirebuiltitsoverseasexchangereservesandimprovedherstabilityofpaymentpositionwhichimproved18 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIoverseasprivateinvestors’confidencethatremittanceofdividendsandloanservicewouldnotbejeopardizedandacceleratedoftheflowofimportstosupportinvestments(Collier2010).Morerecently,andwithasignificantchangeofpoliticalclimateinthecountry,theEconomicRecoveryStrategy(ERS)forWealthandEmploymentCreation(RepublicofMali2003)whichwasanchoredonrestorationofeconomicgrowth;infrastructuredevelopment;improvementofcitizens’welfare;andaccountablemanagementofresourcesasthemainpillarsemphasizedontheneedforcreatingaconduciveinvestmentandbusinessenvironmentinMali.ForeignDirectinvestment(FDI)inMaliisrelativelylowandmainlyconcernsretailorlightindustry.Withindependence22rdSeptember1960andtheannouncementbyMaliofagovernmentstrategyadopted“socialismpolicy”,andthecountrypreciselydemandedprivateforeigninvestmenttohelphisdevelopment.TheParapublicsectorwastobedismantled,althoughitremainedanoteworthyamountoftheeconomy.Theinvestmentcodeof12February2012offerscertainincentives,mainlyintheformoffivetoten(10)yearstariffholidays,tocompanieswillingtoinvestincertainareas.Inthethreefreezones,companiesbenefitfromapermanentexemptionfromalldutiesandtaxes,butmustsell20%oftheirmanufactureonthenationalmarket.Overseasandlocalinvestorsarealsotreatedbyrule.Annual1998FDIinflowstoMaliincreasedfrom0.33%ofGDPin1997to1%ofGDPin1987and0.30%ofGDPin1999and2.04%ofGDPin2000and6.03%ofGDPofGDPin2001accordingto(WorldBank).MalicontributedofworldwideForeignDirectInvestmentinflowsbetween1998and2000representedonly2.40%ofworldGrossDomesticProduct,althoughitwasanimprovementoverthepreviousdecade,whenitsshareofFDIwasonly1.5%ofworldGDPasper(WorldBank).Inrecentyears,theRegimeofMalihascreatedinplacestrongstrategiestopromoteFDI,encouragecompetitionandprivateparticipationinnearlyallsectors.However,theinstabilityofMalisecuritysituation,especiallythemilitaryoccupationbyIslamistandTuaregrebelsetsinthe3northernregionsofMali(Gao;Timbuktu;Kidal),isanencumbranceforinvestors.Indeed,afterpeakingatUS$748millionin2009,FDIinflowsfelltoUS$125millionin2016,theirpositiondecreasesince2001.ThecurrentcapitalofFDIisUS$3billion(WorldBank).ThegovernmentofMalihasputalawtreatingoverseasandindigenousinvestmentatthesameequilibriumbutdomesticfirmsdistorttheeconomy.Thejusticestructureisnotcompetentandvulnerabletocorruption.Stateauthorityinthenorthernregionsisreallyweak,andcorruptionisbigaproblemingovernmentandcommunityandprivatecontractorswhoserequestsforinfluenceareregularlyreported.Laborlaws,eventhoughnotentirelyforced,arenotabsoluteinflexible.Thecountryranks141stonsaleof190countriesin2017undertakingBusinessWorldBankpublishedagainoftwopositionsovertheprecedingyear.19 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALITheMalihassignedinJune2015signedacontractwithenterprise(Eranove),toinvestmentandprogressahydroelectricdam,inJune2017;BWSCwona$100millioncontractforthebuildingofanewstrengthplanthighefficiencythatwillincreasetheelectricalcapacityinMaliby25%.Thecountryisalsotofindingtoprivatizeitsfinancearea.MuchMalianfirmshaverecognizedcombinedprojectswithforeigncompaniesintheminingarea.Newrulesonmininginvestmentwereadaptedin2012,launchingexceptionaleconomicsectorsindisadvantagedregions,offeringassurancestoworldwideinvestors.Themainareasattractingforeigninvestorsaretheuseofgoldandoilandthetextileindustry.InMali,themaininvestorsareFrance,China,ThailandandSouthAfrica.Since2010MoroccoisoneofthemaininvestorsinMaliinthebankingandtelecommunicationssector.IndependentMalihasanelongatedhistoryofinfluxofoverseasprivatecapital.Shortlyafterindependence,ParliamentarylawNo.10SocialismplanningonAfrica(Mali1960)learnedaboutthemeaningofFDIinthecountry'sdevelopmentagenda.HeadvocatedmutualaccountabilitythatincludeddistributingsharestoAfricans,employingAfricansskilledinmanagementandprovidingthemwithtraining.Thesessiondocumentalsorecognizestheshortageofdomesticcapitalandseesforeigncapitalasapanaceatotheshortage,atmostinthesmallterm,butrecommendsanincreaseinnationalsavingswithforcedinvestmentsathometofullyfinancetheinvestmentsdevelopmentneedsofthecountry.In2010Mali'sinvestmentexperiencedadownwardtrenduntil1995,afterreachingitsshortlevelofindependencein1992(1%ofGDP)accordingtoWorldBank,Thesocio-politicalcrisisthathasshakenMalisinceMarch1991-1992andtheclimaticvagariesofthiseconomyverydependentonagriculturehavenotallowedMalitomaintainthelevelofgrowth,becauseofinsufficientorstagnantcommunalandprivateinvestmentsthisshowsthenegativepowerofFDIonthegrowtheconomy,whileseveralofthesenegativeeffects,knownas"costs",areexpectedtoberelatedtoshortcomingsinthehostcountries'internalpolicies,butsignificantproblemsmayarisewhentheseshortcomingscannotbemetnotbesimplyfilled.TheplannotesthatnotsimplytheCapitaldevelopmentofthecountryisdeclining,or2.70%ofGDPin1990comparedto24.66%and55.86%intheyears1985and1986(theWorldBank)respectivelyledtothegrowthofaninefficientanduncompetitivemanufacturingsector,characterizedmainlybyintermediategoodsandunderdevelopedcapitalgoodsindustries(andthusahighrelianceontradeinintermediateinputsandmachinery)andinsufficientinternallinks.Theplanthereforerecommendscarefulenergiestoincreaseinvestmentsandsavingsintheareaby25%to30%ofGDPthroughsufficientmobilizationofnationalsavingsandtheexploitationofforeignsavingscompletetheraiseofFDI.Toachievethisaspiration,theinvestmentclimateisobligatedtoimprovepoliticalstability,improveandkeepinfrastructure,skilledlabor,awell-establishedbankingandfinancialnetwork,anefficientdomesticprovisionandattractiveinvestments4incentives.Malihasrebuiltits20 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIforeignexchangeassetsandimproveditsstabilityinpaymentsposition,whichhasimprovedtheconfidenceofforeignprivateinvestorsthatdividendshipmentsandlendingservicesarenotriskedandacceleratedbythemovementofimportsforforeignexchangesupportinvestmentsCollier(2010).Morerecently,andwithanimportantchangeinthepoliticalclimateinthenation,theeconomystrategyforprosperitycreationandemployment(RepublicofMali,2003)whichwasanchoredonthere-establishmentofeconomicgrowth;infrastructuredevelopment;improvementofthewelfareofcitizens;andresponsibleresourcemanagementasthekeypillarsemphasizedonthemusttocreateanenvironmentencouragingtoinvestmentandbusinessinMali.Accordingtothestrategy,thiswouldrequireanevolutionintheGFCF/GDPratioof1.07%(2002)toabout1.41%(2007).Indeed,theinvestmentplanoftheeconomydevelopplan(RepublicofMali,2003)foresawthatinvestmentgrowthwouldboostthecountry'sgrowthaspirations,externalinvestmentestimatedatleast$2.2billion,and1,$1billionrespectivelyinthecommunityandprivateregions2007(theWorldBank).Asaresult,investmentlevelswereexpectedtoincreasefrom13.6%to24.3%ofGDPifexpectedgrowthlevelsweretobeachievedby2007.(Collier2010)showsthistheplanhasrecordednoticeablereversals,investors'confidenceandgrowthprospectsfor2003at7.0%in2007thepubliczonedeficitwasundercontrol,supportednotablybyastrongstabilityofpaymentssituationduetolargeinflowsoffunds,hightourismreceiptsandimprovedFDI.Foundedontheachievementoftheeconomyplan,Malihasadvancedalong-term"blueprint"fordevelopmentcalled"Vision2030"ofMali.Thisblueprint,anchoredoneconomic,socialandpoliticalpillars,aimstoensurethecompetitivenessandprosperityofMali(economists)recommendthatinvestmentsandsavingsshouldincreaseaccordinglytofurtherthan22percentofGDPifgrowthdouble-digitsconsideredintheeconomicpost.ThemacroeconomicframeworkofthesecondMedium-TermPlanaimstosustainandraisetheinheritedgrowthmomentumoftheformerbyincreasingtheequalofdomesticcapitalformation,drawingontheeconomiccontributionofMalianslivingandemployedoverseasandinallnations’economicsectors(RepublicofMali,2013).DuringtheprimaryepochoftheMedium-TermPlan,i.e.2008-2012,Mali'ssavingsandlocalinvestmentlevelsaveraged11percentofGDP,whichisbelowtheaverageofWestAfrica(15%).Thiswaspartlyattributedtoanamountofnegativeshocks,includingpost-electionviolenceatthestartof2008,droughtandclimateirregularities,andthe2008-2009internationalfinancialandeconomycrisisthatledtoaslowdownofworldwideeconomicactivityandpersistencethehighinternationalpricesofoilandfoodcoveringthedatedfrom2008to2012.21 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI3.3.KeylegislativeinitiativestoattractforeigninvestmentsMalihasboardedonnumerousdeliberatepolicyandlegislativeinitiativestoencourageforeigndirectinvestment.3.3.1.ExportProcessingZonesActMaliadoptedtheExportProcessingZone(EPZ)ActwhichestablishedtheExportProcessingZonesAuthorityto;promoteandfacilitateinvestmentinlocalproductionfortheexportmarketsandthegrowthofsupportinginvestmentenvironmentforsuchmanufacturing,commercialorserviceactivitiesandfor“connectedpurposes”.TheExportProcessingZoneenterprisesamongstotherraftofincentivesareexemptedfromthepaymentofwithholdingtaxonpaymentsandotherremittancestoforeigners(expatriates),incometax;andexchangecontrolsonpayments(RepublicofMali1991).WhileEPZsareopentobothnativeandoverseasinvestors,theseexemptionsseemappeartobedirectincentivestoforeigninvestors3.3.2.InvestmentPromotionActIngeneral,thelawaimedatsimplifyingtheinvestmentprocessbycreatingMaliInvestment(asemi-autonomousgovernmentagency)whoseprincipalobjectiveistoinspireinvestmentinMalibyfacilitatingthemanufactureofinnovativeprojects,existinginvestmentsandpromotingMaliasaninvestmentdestinationlocalandinternational.3.4.SpecialEconomicZonesAct,2015Theimplementationsofthislaw(n08of20February2015)helptothedescriptionofexceptionaleconomiczoneswhosegeographicareaswithlanduse,infrastructureandcommunityservicesareincludedintothesector.TheSpecialEconomicZoneAuthoritywillfacilitatepro-businesspoliciesandencourageforeignanddomesticinvestmentindesignatedareas.Thiswillbedonebypublicbodies,privateinvestorsorthroughapublic-privatecorporation(RepublicofMali2015).22 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI3.6.FDIandEconomicGrowth-Mali’sTrendFigure1:TrendofEconomicGrowthSource:WorldBankFigure2:TrendofForeignDirectInvestmentSource:BureauStatisticalofMali23 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIFigure3:Mali’sFDIandEconomicGrowthtrendSource:TheWorldBank,BureaustatisticalofMaliThetrendofMali'seconomicgrowthindicatesapositionthatissensitivetointeriorandexteriorshocks.Forexample,thenegativegrowthof1992isattributabletomassivedisinvestmentsandthewithdrawalofofficialdevelopmentassistancebecauseoftheuncertainpoliticalclimatecausedbytheunrestformulti-partydemocracy,theensuingviolenceandthefugitivecorruptioninthecountrythetimeuptothisyear'sgeneralelection.Ingeneral,allelectionyearshavenegativeeffectsoneconomicgrowthrates.Thedecadefrom1991to2000isindicativeofuncertaintiesaboutMali'seconomicgrowthtrajectory.However,startingin2002,theeconomyhasbeenonanupwardtrajectory,dueinparttoasmoothtransitiontogovernmentsandthedeliberatemacroeconomicstabilizationeffortsthatthesuccessorgovernmenthasinitiated.Indeed,thisrate(%)periodcorrespondswiththetime(2003-2007).Thisshowsthateconomicgrowthhasarobustrelationshipwiththepoliticalclimate(andbyextensioninvestment)andmacroeconomicstability.Thesharpfallinthegrowthratein2008isadirectconsequenceofthepost-electionupheavalsattheendof2007andthestartof2008.Inthefuture,theeconomyhaspresentedsomesignsofrecovery,albeitbelowexpectedgrowthofatleast10%inVision2030.24 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI3.7.GovernmentExpenditureinMaliImprovedFinancingforSocialSectorInbotheducationandhealth,Malirankswiththeworstperformingcountriesintheworld.Thisshouldmakedevelopmentofthesesectors,inparticulartheprovisionofprimaryhealthcare,primaryandsecondaryeducationservicestheoverridingurgentpriorityofGovernment.Figure4:TrendHumanCapitalinMaliSource:BureauStatisticalofMaliIneducation,thefundamentalissueistheunderfundingofprimaryeducationwhichreceivedonly37%ofpublicsectorfundstothesector.Thisshareislowrelativetotheaverageof46%forlowincomecountries,andrelativetotheobjectiveofachievingsubstantialimprovementinprimaryenrollmentratiosby2001.Atthesametime,increasesinoverallsectorfinancingwentlargelytohighereducationandtoalesserextenttothesecondarylevelthroughhigherlevelsofstudenttransferspending.TheGovernmentspentovertheperiod,aboutUS$57perprimaryschoolstudent,comparedtoUS$1,596foreachhighereducationstudent.Thisintrasectoraluseofresourcesisinappropriategiventhatthesocialreturnstoprimaryeducationareabout3timesthattohighereducation.In2015,publicexpenditureoneducationforMaliwas18.2%.Though25 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIMalipublicexpenditureoneducationfluctuatedsubstantiallyinrecentyears,ittendedtoincreasethrough2003-2015periodendingat18.2%in2015.Figure5:TrendGovernmentExpenditureinMaliSource:BureauStatisticalofMaliThekeyissueissignificantlydecliningpublicfinancinginspiteofoverwhelmingneedsinsectorandclearevidenceofunderfunding.Thisisaggravatedbyinefficienciesindrugsexpenditure,andlowcostrecoveryathigherlevelfacilities.Totalhealthexpenditureisthesumofpublicandprivatehealthexpendituresasaratiooftotalpopulation.Itcoverstheprovisionofhealthservices(preventiveandcurative),familyplanningactivities,nutritionactivities,andemergencyaiddesignatedforhealthbutdoesnotincludeprovisionofwaterandsanitation.Healthexpenditurepercapita(currentUS$)inMaliwasreportedat1.9billionUSDin2015,accordingtotheBureauStatisticalofMali.26 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIChapterⅣ:Methodology4.1.ResearchMethodologyInthissection,thebasisofthisstudytoshowtheempiricalanalysis,thetheorizationoftheFDI-inducedgrowthframework,thedescriptionoftheempiricalmodel,andthedescriptionofthedataandvariables.Thechapterarrangesthegroundworkfortheargumentoftheconclusionsinthefollowingchapter.4.2.ModelEstimationThissurveyusedOLS(ordinaryleastsquares)toapproximationthemagnitudeoftheeffectandconditionsofFDI-inducedgrowth.4.3.AnalyticalModelAlinearlog-logregressionmodelwasusedinthestudytoexaminetheeffectofFDIonEconomicGrowth.Theliteraturereviewedhasshownlinearitybetweenthedependentvariableandindependentvariablesthereforelinearmodelwaspreferredforthisstudy.TheresearchmodelofthisstudyisbasisCobb-DouglasproductionfunctionwithFDIintegratedasoneofthefactorinputs;whichtakestheform:GDP=f(FDI,GE,HC)Mathematically,thelog-logmodelshowingthecorrelationbetweenthedependentvariableandtheindependentvariableswillbeformulatedasfollowsLogGDP=β0+β1LogFDI_inflow+β2LogGE+β3LogHCGDP=GrossDomesticProductinMaliFDI=ForeignDirectInvestmentInflowinMaliGE=GovernmentExpenditureinMaliHC=HumanCapitalrepresentedassecondaryschool,universities,andcollegesenrollmentβ0=Constantβ1,β2,β3=CoefficientsofindependentvariablesHypothesisH1:β0,β1,β2,β3>0H0:β0,β1,β2,β3#027 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI4.3.1.Operationalizationofthevariables:GrossDomesticProductItisobtainedasagrossoutputofallcompletegoodsandservicesintheentireeconomy.Normallyusedbecauseitisagoodshowthescopeofgrowthinaneconomy.ThedatawillbecollectedfromWorldBank,statisticalquarterlyabstractsforperiod1985to2015.ForeignDirectInvestmentsItshowsthenetinflowsofforeigninvestmentsinthecountry.IfFDIischanneledintoproductiveuseitmayleadtoeconomicgrowth.ThedatawillbecollectedfrombureaustatisticalofMali,statisticalquarterlyabstractsforperiod1985to2015.HumanCapitalThisvariableisassociatedwiththeproportionofstudentsinsecondaryeducation,universitiesandotherscollegesasanindicationofthevalueofthecountrylaborforceandthusitsattractivenessasaplacetomanufacturegoodsorprovidesophisticatedservices.Theproportionofeligiblestudentsinsecondaryeducationissignificantinreflectingthestatusofaneducatedeffortforceforcompetitivenessinmodernmanufacturingandserviceactivities.ThedatawillbecollectedfromWorldBank,statisticalquarterlyabstractsforperiod1985to2015.GovernmentExpenditureItisestimatedtobearadirectrelationshipwitheconomicgrowth.Anincreaseingovernmentexpendituretranslatestoprovisionofmoresocialcapitalhenceencourageeconomicgrowth.GovernmentspendsmoneyindevelopmentofinfrastructurewhichdecreasesworkingcoststherebypromotingFDI(WheelerandMoody1992).Infrastructureincreasestheproductivityofinvestmentsthusimprovingeconomicgrowth.Further,Governmentsundertakecriticalhumandevelopmentinsuchregionsaseducationandteachingthataredirectinputstogrowthcompletetheraiseoftechnologyandskillsdevelopment.This,inthelong-run,encouragesdevelopingoftheimportancemorecontentofproduction.ThedatawillbecollectedfromWorldBank,statisticalquarterlyabstractsforperiod1985to2015.4.4.Pre-estimationtests4.1.1StationarityTestThelackofliberationofremarksovertime,i.e.non-stationaryseriesthatleadtofallaciousorinconsistentregressionproblems,wherenullhypothesesendupbeingrejectedwhentheyshouldhavebeenaccepted.Stationaryserieshavefinitevariance,experiencetransientdeviationsfromthemean,andisapttocomingbacktotheirlong-termmean.Thatis,wetargetisestimatevariablesthathavetheiraveragesandtheirvariancesasdefinitetime-independentconstants,thatis,stationaryseries.ThiswillbedonebyapplyingtheDickey-FullerEnhancedUnitRoot(ADF)test.28 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI4.4.2.Co-integrationTestAbadirandTaylor(1999)indicatethatco-integrationwhenvariablesdeviatefromacertainrelationship.Inthelongterm,deviationsareexpectedtobecorrectedleadingtoconsistentdifferencesbetweenvariables.AccordingtoEngelandGranger(1987),theorderofintegrationofanon-stationarytimeseriesdefinesthenumberoftimesitmustbedifferentiatedtoreachstationarity.WewilluseADFtoexamtheunitrootsintheresidues.Thiswillbetestedonanullhypothesisthattheresidueshaveunitroots,i.e.theseriesarenotstationaryagainstanalternativehypothesisthattheresiduesdonothaveunittests(i.e.thattheseriesarestationary).29 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIChapterV:EmpiricalResults5.1.EmpiricalResultsEmpiricalresultstheanalysisispresentedinthissectionwherestationaritytest,co-integrationtestandanalytic(diagnostic)testsarediscussedandtheregressionresultspresented.5.2TestingforStationarity(DataPresentationandAnalysis)Unitroottestapproacheswereemployedtoascertainwhetherthevariablesemployedinthemodelwerefreeofunitroot.AlthoughfortheAutoregressivelag(ARDL)methodtoco-integrationdoesn’trequirepre-testingofthevariablesfortheexistenceofunitroot,thestudyundertookthetesttoascertainthatthevariablesarenotcombinedofordergreaterthanone.AugmentedDickey-Fuller(ADF);ADFunitroottestisspecifiedas;Ho:variablehasunitroot[I(1)]HA:variablehasnounitroot[I(0)]Decisioncriteria,ift-calculatedismorethantheabsoluteofthecriticalvalueat5%significantlevelwhichwaschosenbythisstudy,reject(refusetoaccept)thenullhypothesis.Thatisweagreetotake(accept)thealternatehypothesisofthevariablebeenstationary.Table1:UnitRoot(ADF)resultsstLevel1DifferenceVariablesADFCriticalResultADFCriticalResultC&TValue(5%)C&TValue(5%)LogGDP0.350913-2.963972I(1)-8.022943-2.967767I(0)(0.9772)(0.0000)LogFDI-1.649380-2.963972I(1)-5.090384-2.991878I(0)(0.4458)(0.0004)LogGE-0.354876-2.963972I(1)-5.099483-2.967767I(0)(0.9047)(0.0003)LogHC-1.415063-2.963972I(1)-6.212218-2.971853I(0)(0.5617)(0.0000)Source:E-VIEWS9.5Note:FigureswithinparenthesisindicateMackinnon(1996)onesidep-value.5%criticalvaluetorejectofhypothesisofunitrootapplied.30 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALITableshowstheresultofADFthatallvariableshaveunitrootatlevel;theyareallstationaryafterfirstdifferencingat5%significantlevel.ThatcanbeappreciatedbycomparingthecomputedvaluesofboththeADFstatisticstestwiththecriticalvaluesat5percentlevel.5.3.GrangerCausalityTestThispartisnowbasedinprincipleontheGrangercausality,thelargerelationshipbetweenforeigndirectinvestmentandgrossdomesticproduct.WorkswithGrangercausalitybetween2variablesX,Yareallstationary.Thetwo(2)researchersGrangerandEngel(1997)detectthatifco-integrationhappensbetweentwo(2)variablesinthelongrun,theremustbeeitherunidirectionalorbi-directionalGrangercausalitybetweenthem.WhenGrangercausalityholdsthisdoesn’tassurancethatXcausesYbut,itproposesthisXmaybewillcauseY.Grangercausalityisdonetoseetheshortruncausality.Ifeconomictheoryclearlyindicatesthecausality,justfollowthetheory.Table2:GrangerCausalityTestSource:E-VIEWS9.5Asitisshownabove,itwasfoundoutthatbidirectionalcausalrelationshipexistsbetweenFDIinflowAndGDP.ThebidirectionalconnectionbetweenGDPandFDIinflowinfersthatFDIinflowisnotonlybasisofGDP,nonethelessalsohasinfluence.Bothprobabilitythatis0.0437and0.0083aresignificantat5%levelofsignificancethatmaintainsthatbothFDIinflowandGDPhasbidirectionalcausalrelationshipasdepictedaboveintheoutcome.5.4.TestingforCo-integrationFindoutifthereisalongtermrelationshipbetweenthevariables,datawasregressedandthelaggedvaluesthusobtainedweretestedusingDickey-FullerforUnitroottest.Theresultsintableshowusalongtermrelationshipbetweenvariablesasshownonthetablebelow:31 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALITable3:Resultsestablishingco-integrationSource:E-VIEWS9.5***At5%criticallevel5.5.DiagnosticTestsThereliabilityofthegoodnessofthemodelisdeterminedbyconductingthediagnosticandstabilitytestsofthemodel.ThediagnostictestsareapprovedouttotesttherobustnessoftheresultsfromtheADRLmodel.ThediagnosticteststakecareofSerialautocorrelation.Toensureconsistency,thestudyemployeddiagnostictestswhichAutocorrelation,andHeteroscedasticity.5.5.1.SerialcorrelationTestSincethestudyisdealingbytimeseriesdata,thepossibilityofautocorrelationishigh.Sothereisneedtodothetestresidualsforautocorrelation.TheemployedLMTestofresidualsserialautocorrelationsadoptedbyBreusch-Godfrey.32 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALITable4:SerialCorrelationLMTestSource:E-VIEWS9.5TableshowstheresultofLMtestbasedonBreusch-Godfreyframeworkwhichindicatedthatthenullhypothesisofnoserialcorrelationscouldbeacceptedat5percentlevelofsignificance.TheprobabilityoftheobservedR-squaredisabout36%whichmorethan5%requiredtoadmit(accept)thenullhypothesis.Thisindicatesthereisnoautocorrelationinthevariables.5.5.2:HeteroscedasticityTestThestudyfurtheremployedHeteroscedasticitytestundertheframeworkofBreusch-Pagan-Godfrey.Theresultisillustratedintablebelow.Table5:HeteroscedasticityTest:Breusch-Pagan-GodfreySource:E-VIEWS9.533 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIThenullhypothesisofnoHeteroscedasticitycouldbeacceptedsincetheprobabilityismorethan5%i.e.,38%.Thus,theanalysisisnotsufferingfromHeteroscedasticity.5.6.ResultsDiscussionLogGDP=β0+β1LogFDI+β2LogGE+β3LogHCLOG(GDP)=11.35+0.061*LOG(FDI_INFLOW)+0.43*LOG(GE)+0.10*LOG(HC)(0.99)(0.01)(0.06)(0.02)ThisstudyistryingtoexaminetheimpactofforeigndirectinvestmentonthegrowthoftheMalianeconomyusingdataonFDIinflowsandGDPfrom1985to2015.Soinordertobeabletogetourmainobjective,wedevelopedthefunctionCobbDouglassproductionandregressionofordinaryleastsquares.Intheregressioncalculationswehadtousesuchasgrossdomesticproduct(GDP)isrepresentedasthedependentvariablewhileforeigndirectinvestment(FDI),publicexpenditure(GE),andhumancapital(HC)aretheindependentvariables,tocalculatetheimpactofFDIoneconomicgrowthinMali.ThedatawerethenexposedtovariousdifferentialanalyzestofindrelationshipsbetweenvariablessuchasGDP,IDE,CHandGEanalyzetheircorrelations.FDIinflowmeansforeigndirectinvestmenttheresultsshowusthata1%changewillincreaseGDP0.06%,allthingsbeingequivalent,howeveritisstatisticallyverysignificantat5%of0.000%,thismeansthatwhenthegovernmentofMaliattractsmoreinvestorswilllikelyincreaseeconomicgrowth.ThisshowsthatthereareaverypositiveconnectionbetweenFDIandeconomicgrowth.Andalsotheplanattractsalotofinvestmentintheminingsectors,agriculturalalsothebuildingofroadsandhydroelectricdams.GEmeans(governmentexpenditure)theresultsisalsotryingtoshowusthata1%changeinGEwillsteerGDPtowardsanriseof0.43%,andalsoitisstatisticallysignificantatthe5%levelof0.000%.Essentially,thismeansthatwhenthegovernmentofMaliincreasesitsspending,economicgrowthimproves,whichsimplyshowsthatthereisapositivelinkbetweenthepublicandeconomicgrowth.TheMaliangovernmentistryingtoaddresssocialandeconomicchallengesbyinvestingheavilyineducationandtraining,scalingupsocialservices,proposingagrarianreformsandaffirmativeaction,providingsafetynetstothemarginalizedpoorandencouragingpoliciesthataremoreconducivetoeconomicgrowth.Recently,thegovernmentintroducedfreeandopenprimaryandsecondaryeducationinallpublicschoolsandevenuniversities,whichisveryimportant.HKstandsforhumancapital,theresultsalsoshowherethatthe1%increaseinHKwilldirectGDPtoanincreaseof0.10%;thisvariableisalsoverystatisticallysignificantat5%of0.0002%.Thatis,ifhumancapitalriseseachtimeeconomicgrowthwillincreasethenthegovernment34 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALImustpromotetheplanhowtoincreasehumancapitalwhichwillnotonlyreducepovertyinthecountrybutalsorapidlyincreaseeconomicgrowth..Thus,hecanaffirmthattheinfluenceofforeigndirectinvestmentontheeconomicgrowthofMaliispositive.CorrelationanalyzesbetweenFDIinflowsandothervariablessuchashumancapitalandgovernmentexpendituresalsoshownadirectproportionalrelationship.ThisresultisalsoinlinewiththeresultsofpreviousstudiesthataretosayinprincipleonthedirectpositiveinfluenceofFDIandGDP.Inthisregard,inastudybyIlhan(2007)ofmorethan50empiricalstudiesontheconnectionbetweenFDIandeconomicgrowth,40studiesshowedapositiveimpactwithonly2negativereportsandtherestdidnotshowingnoeffect.ThisempiricalindicatesthatmostFDIisrelatedwithgrowth.Inaddition,lumbila(2005)verifiesanassumptionthatFDIhasanoverallinfluenceonGDPgrowthandtheresultsmakeknownastatisticallysignificantdifference:ifFDIincreasesby0.01point,thismeansthatanincrease10%ofFDIcanbringabout0.61percentgrowth.Aboutanotherstudy,FeridunandSissoko(2002)studythecorrelationbetweenFDIgrowthandGDPgrowthforthe1976-2002periodsinSingaporewithGrangercausalityandAutomaticVectorRegression(VAR).TheirresultshaveshownaunidirectionalcausalityrangingfromFDItoGDPgrowth,butinminetheresultshownbidirectionalcausalitybetweenFDIandGDP.ItalsocorrespondstotheresultsofEsso(2010),whichreportsinitsstudyofAfricancountriesontherelationshipbetweenFDIinflowsandGDPgrowth,strongpositiveimpactandsignificantgrowthinAngola,Mali,Côted'Ivoire,Kenya,SouthAfrica,LiberiaandSenegal.RarestudiessuchasSalzhaveanegativerelationshipbetweenFDIandGDPgrowth.DeMello(1997)studiesdevelopingcountries.HedeclaresthatFDIissupposedtobeacombinedsetofstocksofcapital,know-howandtechnologicallyprogressiveanddevelopingcountries.Thelevelofcompetenceoflocalfirmsmustplayaroleandthelostcountriesmustusenon-fiscalinstrumentssuchasspecifyingthelocalcontentofinputstoincreaseprofitsfromFDI.Inaddition,otherempiricalevidenceonthedisadvantagesofFDIpositsthatforeigndirectinvestmentdoesn’thavesomenegativeaspects.Importingcapitalrequirementsandobsoletetechnologyincreasingthelocalwagefullpaymentofhighwagesbysubsidiariesofmultinationals.Contributiontoeconomicleakage(andthedeteriorationofthebalanceofpayments)bythepreferenceofimportedinputsforlocalimports,lackoflinkswithlocalcommunities,developmentof"enclaves",negativeeffectoncompetitioninthelocalmarket,usetransferpricingtoevadelocaltaxesanddeceivelocalpartnersonreturns,Encouragementofcorruption,environmentalpollution,particularlyintheextractiveandheavyindustries,socialdisorganizationassociatedwithacceleratedmarketingandcreationoftastesforexpensiveforeignconsumergoodsand,asaresult,deprivationofpoliticalautonomy.35 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALITheempiricalresultsmakeknownadirectproportionalitybetweenGDPgrowthandforeigndirectinvestment.TheseresultsimplythatFDIencouragesGDPgrowthandrecommendsthattheMaliangovernmentshouldputinplacethepoliciestoattractmoreandmoreforeigninvestmentwhilemanagingthesameinvestmentstoavoidthenegativeinfluenceofFDIonlocalbusinesses.Suchasforeclosuretransferpricestoevadelocaltaxesandthecontributiontoeconomicleakagethroughthepreferenceofimportedresourcesputintoaprojectinputstothecitizens.Theresultsalsounderlinethegovernmentneedtoeliminatedeepflawssuchascorruption,toenhancesecurity,especiallyintheaftermathoftheterroristattacks.Wemustalsochannelinvestmentsininfrastructureand,ingeneral,createalicensingenvironmenttomorecompetitivelymobilizeFDIfundstointegrateintooureconomy.Finally,recentprogressintheminingareaincludinggoldmininginthesouth-westregionandtherecentlydiscoveryofoilreservesinnorthernMali,aprojectofwhichforeignpartnersarecandidates;policiesshouldbedevelopedtocontroltherepatriationofMali'sincome.Onthecontrary,abigpartofthesefundsshouldbereinvestedinmoreneedysectors,inparticulartowardshumandevelopment,sinceGDPgrowthwouldbenegligibleifitdidnotreflectthepopulationpositivelybyreflectinganimprovementinthestandardofliving,WhichaimstotransformMaliintoanewlyindustrializedmiddle-incomecountryofferingagoodqualityoflifetoallpeopleby2030inacleanandprotectedenvironment.36 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIChapterVI:ConclusionandPolicyImplications6.1ConclusionThefirstchapterexploresthecontextofthisstudybydevelopingwhatFDIimplies,itsimpactsbothpositiveandseveraldefinitions.ThesecondchapterlooksatmytheoriesaboutFDIandeconomicgrowth.Thechapterthendevelopedthefindingsofotherresearchersonthesubject.ChapterthreeisbasedonFDIinMaliandfactorsaffectFDItrendsoneconomicgrowthinMali.ChapterFourdetailstheresearchmethodappliedinthisstudy.Thefollowingsectionexplainsthedesignoftheresearchbasedontheresearchquestions,themethodologyusesaquantitativeresearchmodelthathelpstoidentifythenumericalcharacteristicsoftheeffectsofFDIoneconomicgrowthinMali.Thechapteralsodetailshowthedataanalysiswillbeperformed.Thetargetpopulationexplainedaswellasthesamplingprocedure.Thesurveyinstrumentswereexplainedbyvalidationandverificationofthereliabilityoftheresults.Thenextchapterprovidesadetailedreportoftheresultsofthecasestudy.TheresultsofthestudyshowthatthereisastrongandsignificantpositiverelationshipbetweenforeigndirectinvestmentandeconomicgrowthinMali.Thispositiverelationshipmeansthatthereisadirectproportionalrelationshipbetweenforeigndirectinvestmentandeconomicgrowth.Theresultsshowthatotherfactorsalsoplayedarole;inparticular,therelationshipbetweenFDIandhumancapitalispositive,indicatingadirectproportionalassociationbetweenthetwovariables.Thismeansmoreforeigndirectinvestmentinhighereducationinstitutionsandthereforeahigherlevelofhumancapital.Onthebasisoftheabove,wemuststimulateforeigndirectinvestmenttopromoteeconomicgrowth.ThepoliticalimplicationsofthesefindingsarethatFDIisaprerequisiteforeconomicgrowthinMali.TheresultsalsohighlighttheneedtoinvestinhumandevelopmentwithGDPgrowthisnegligibleifitdoesnotpositivelyreflectthepopulationbytranslatinganimprovementinlivingstandards,whichcorrespondstothe2030visionthataimstotransformMalianewindustrializedcountryandanintermediateincomeofferingahighqualityoflifetoallits2030citizensinacleanandsecureenvironment.37 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIForeigndirectinvestmentisimportantforanydevelopingeconomyasitbridgesthegapbetweennationalinvestmentsandfacilitatestechnologyandknowledgetransferfromabundanceregionstodeficitregions,mainlydevelopingeconomies.However,studiesontherealeffectofFDIoneconomicgrowthhaveoftenyieldeddifferentresults.ThesuccessorgovernmentinMalihasimplementedvariousdeliberateinterventionstoattractFDI,althoughthecountryhasnotbenefitedmuchfromFDIspillovers.ThisstudythereforesoughttoexaminetheeffectofFDIandtheinterveningvariablesoneconomicgrowthinMaliforthe1985-2015periods.TheauthorselectedothervariablesbyaddingIDEsasguidedempiricalstudiesinthislineofstudy.Thedescriptivevariablesusedinthestudyincludeforeigndirectinvestment(FDI),publicexpenditure(GE),andhumancapital(HC).ThesmallestordinarysquarewasusedtoestimatetheeffectofFDIandothervariablesonMali'sGDPgrowth.Increasedforthestationaritytestofthevariablesshownthatsomewerestationaryatlevelswhileothershadatleastoneunitroot.TheresultsshowedthatFDI,initself,wasimportantforinfluencingeconomicgrowthinMali,buthadtointeractwithpublicspendingandthehumancapitaloftheeconomyortoconditionthedesiredimpactontheeconomygrowth.EconomictheoriesarguethatFDIhasthepotentialtobeanimportantcomponentofanation'sdevelopmentstrategy.FDIcontributestodevelopmentinthreemainways(Jacobs,2001).First,capitalinflowssuchasFDIallowcountriestoimportmorethantheyexport,whichallowsthemtoinvestmorethantheysaveandthusaccumulatecapitalmorequickly,whichboostslaborproductivityandwages.FDIhasthepotentialtoabsorbsomeofthesurpluslaborliteracyinruralandurbaninformalsectors(Jacobs,2001).Jobcreationinindustrieswithgoodprospectsforproductivitygrowthisanimportantaspectofpovertyreductionstrategies,whichisgoodforlocalentrepreneurs(Watkins,1998).Third,FDIcantransfertechnologyandexpertise,therebyboostingtheproductivityoflocalfirms(Jacobs,2001).38 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIThiscanoccurthroughtraining,competitionandemulationinindustrieswhereforeignfirmsarepresentandthrough"upstreamanddownstreamlinkages"withotherindustries(forexample,foreignfirmsprovideinputsandproductionmarketsonmorefavorabletermsexports).InthecontextwherewefindadirectproportionalrelationshipbetweenFDIandeconomicgrowth,thegovernmentshouldstrivetoattractmoreFDI,butenforcestrictrulesandregulationsonforeigninvestmentandmakeallitspossibletomanagetheIDEsubsidieswhilepreventinginotherindustriesbythelegislation.ItisimperativethatpoliciesthatpromoteeconomicgrowthreceivesufficientattentiontostimulateeconomicgrowthinordertoattractFDI,astheliteratureindicatesthatmostofthefactorsthatstimulateeconomicgrowthalsoattractFDI.TheliteraturealsoshowsthatthetrendofFDIshowsthatsomecountriesattracthigherFDIthanothers.MalihasrelativelylowlevelsofFDIand,assuch,needstoimproveitsbusinessenvironmentbyimprovingadministrative,legalandjudicialprocedurestoensurepropertyrights,fightcorruptionandrespecttheenvironmentlegality.AllofthesecountrieswillseehigherlevelsofmuchneededFDIchanneledintothecountry.Inanutshell,foreigndirectinvestmentschanneledintothecountryshouldbewellusedfortheprojectsforwhichtheyaretargeted.6.2PolicyImplicationsThestudyfoundastrongpositiverelationshipbetweenFDIandGDP,thelevelofhumancapacityandGDP,andthenpublicspendingandGDP.Basedonthefindingsfromthisstudy,thefollowingrecommendationsaresuggested.ThegovernmentofMalineedstoimprovethesesectorswhichhaveapositiveeffectoneconomicgrowth.Policiessuchasopeninguptheeconomybyengagingmorebilateralandmultilateraltradeagreements,improvingthequalityofinfrastructurebychannelingmoreresourcesfordevelopment,especiallyinmarginalizedareasofthecountrywiththediscoveryinthenorthofthecountry,andshowgreaterpoliticalwillinthefightagainstcorruptioninordertoinspiremoreconfidenceinforeigninvestors.ThesepoliciescanenhancetheattractivenessofFDIandtherebyincreaseeconomicgrowth.39 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIMultinationalsplayakeyroleinforeigndirectinvestmentintheMalianmarket,particularlyintheconstructionindustry.Oneofthedirecteffectsofthissituationisthefearoflocalbusinesseslosingcontrolofmarketsandindustriesovergrowingmultinationals.Toanswerthequestionofhowdomesticfirmscansurviveandcompetewithmultinationals,thegovernmentneedstoreviewtheirFDIandmultinationalpolicies.Inaddition,becauseofthepositiveeffectsofFDIontheMalianeconomy,thegovernmentshouldcontinuetomaintainitsopendoorpolicyforFDIandmultinationalsinthefuture.However,feasiblemeasuresshouldbetakentolimitthedisadvantagesfordomesticfirms.Foreigninvestmentpolicyshouldbeseenasacomplementaryelementofnationaldevelopmentpolicy.Opennesstoforeigndirectinvestmentandmultinationalinvestmentmustbeachievedsimultaneously.Nospecialtreatmentshouldbegiventomultinationals.Localbusinessesshouldinsteadreceivethesametreatmentandtheadministrativeburdenonnationalstate-ownedenterprisesshouldbephasedout.ThegovernmentmustalsogofurtherandactivelyseektoattractFDIbycommercializingoureconomyandpossiblycreatingnationalinvestmentpromotionagencies(UNCTAD,2001).Insummary,withrespecttoinvestmentpromotionpolicies,MalishouldtakeaproactiveapproachtopromotingFDIandexplicitlyseekwaystoincreaseitsbenefitsintermsoftechnology,skillsandmarketaccess.Inthistypeofpolicy,foreigninvestorsaretargetedattheindustry/enterpriseleveltomeetthespecificneedsofMalithatcorrespondtoitsdevelopmentpriorities.6.3LimitationsoftheStudyThemainlimitationofthisstudyisthatitdoesnotincorporateallthevariablesthatinfluenceeconomicgrowth,assuggestedbyotherempiricalstudiesduetothelackofrecordeddata.Forexample,corruptionisadeterminantofthecountry'seconomicgrowth,butdataonthisvariableareunavailable,makingitdifficulttointegrateintothestudy.AndmyvariableswhicharealsoFDI,GovernmentExpenditureandHumanCapitalthatItookintheBureauStatisticalofmycountrythedataareavailablefrom1965to2015whilethoseof2016and2017arenotyetavailablethat’swhyImademystudyon1985to2015.AnothercrucialareathatlimitsthisstudyisbasedonifallgovernmentexpenditurehaveanimpactonFDIinflow,moreoveronhuman40 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIcapitalitisassumedonlytheschoolingfactorratherthanjobexperiencethatmightboostsFDIinflowinMali.6.4AreasforFurtherStudyFutureresearchersmayexaminetheeffectofomittedvariablestoestablishtheirrealimpactonFDIinflowandGDPgrowthforinstance,theconsequenceofcorruptionandinstitutionalqualityonMali’seconomicgrowth.41 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THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIAppendicesAppendixI:UnitRootTestregressionGrossDomesticProductForeignDirectInvestment47 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIGovernmentExpenditure48 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIHumanCapitalAppendixII:DescriptiveStatisticsThetablebelowgivesasummaryofvariablesusedforthisstudy.DescriptivestatisticsofLog(GDP),Log(FDI_INFLOW),Log(GE),Log(HC).Table6:DescriptiveStatisticsSource:E-VIEWS9.549 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIThetotalobservationsconsideredinthisstudywere31with4variables(onedependentandthreeindependentvariables).Rangofallvariablesisdeterminedbythedifferencebetweenthemaximumvalueandminimumvalue.ForexamplethemaximumvalueofLog(FDI_INFLOW)ratiotoGDP20.43whiletheminimumis13.81givingarangeof6.62.Thestandarddedeviationshowsthespreadofthevaluesfromthemeanandisimportantforcomparisonpurposes.ForexamplethedatashowsthatinteractionbetweenLog(FDI_INFLOW)andlevelofLog(GovernmentExpenditure)hasalargerspreadcomparedtoothervariables.Log(FDI_INFLOW)hasastandarddeviationof2.13,Log(GovernmentExpenditure)has0.46,andLog(HumanCapital)has1.07.AppendixIII:CorrelationMatrixTable7:CorrelationmatrixSource:E-VIEWS9.5Fromtable,weobservetherelationshipexistingbetweenvariousvariablesusedinthisstudy.Multicollinearitywouldbeconsideredpresentifthecorrelationcoefficientwasequaltoorabove0.8asitmayleadtospuriousregression.AppendixIV:RamseyTestTable8:RamseyTestSource:E-VIEWS9.550 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALIAppendixV:CUSUMTestTable9:CUSUMTestSource:E-VIEWS9.5AppendixVI:NormalityTestThestudycheckedwhethertheresidualsarenormallydistributedusingNormalityTest(Jarque-Beraapproach).Inthisframework,thenullhypothesisof“normaldistributionoftheresiduals”istestedagainstthealternativehypothesisof“theresidualsarenotnormallydistributed”.Thenullhypothesiscouldbeacceptediftheprobabilityvalueisgreaterthan5%.Table10:NormalityTestoftheResiduals51 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALI6Series:ResidualsSample198520155Observations314Mean-1.24e-15Median0.0075213Maximum0.134816Minimum-0.177665Std.Dev.0.0853792Skewness-0.151660Kurtosis2.0556791Jarque-Bera1.2706710Probability0.529758-0.20-0.15-0.10-0.050.000.050.100.15Source:E-VIEWS9.5TableindicatedthattheprobabilityofJarque-Berastatisticis52%.Thereforethestudyacceptsthenullhypothesisofnormaldistributionoftheresiduals.AppendixVII:MulticollinearityTestVarianceInflationFactors(VIF)wasexaminedfortestingmulticollinearity.Table11:MulticollinearityTestSource:E-VIEWS9.5ThistableshowsnomulticollinearitybecausethecenteredVIFofallvariablesissmallthan10.AppendixVIIIOrdinaryleastsquares(OLS)regressionTable12:OLSregression52 THEIMPACTOFFOREIGNDIRECTINVESTMENTONECONOMICGROWTHINMALISource:E-VIEWS9.5LogGDP=β0+β1LogFDI+β2LogGE+β3LogHCLOG(GDP)=11.35+0.061*LOG(FDI_INFLOW)+0.43*LOG(GE)+0.10*LOG(HC)(0.99)(0.01)(0.06)(0.02)2R=0.95n=3153