The effect of foreign direct investment on agricultural growth in Ghana

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This research paper investigates the effect of Foreign Direct Investment on the growth of the agricultural sector in Ghana. The literature surrounding the FDI-Growth nexus with respect to the effect of FDI on the growth of agriculture is not expansive. Agriculture employs majority of the working population and poor population in developing economies such as Ghana. Hence, the effect of any investment vehicle on such an essential sector is relevant for the formation of better-informed policies. Variables examined in this study are Agriculture Value Added as the dependent variable and FDI inflows as the independent variable. Inflation, Gross Fixed Capital Formation, and Trade Openness served as the control variables. Data on these variables were collected from 1984 to 2019. The study applied the Autoregressive Distributed Lag (ARDL) Model to assess the nature and significance of the effect FDI has on the agricultural sector in Ghana. The various diagnostic tests when determining OLS estimates were conducted ensuring the model is robust and of good fit. The paper finds that FDI in the long run has a negative and significant effect on the growth of the agricultural sector whiles inflation has a positive and significant effect. In the short run, FDI has a positive and significant association with the agricultural sector. The Government should focus on the improvement of the human capital within the sector and invest in equipment and much needed infrastructure such as roads. The laws and frameworks surrounding private business in the agricultural sector needs to be reformed and less restrictive.
Undergraduate thesis submitted to the Department of Business Administration, Ashesi University, in partial fulfillment of Bachelor of Science degree in Business Administration, May 2021
ARDL model, agricultural value added, agricultural sector