The Effects of Foreign Direct Investment on the Economic Growth in Developing Countries: Case Study of Cameroon

This thesis aims to empirically investigate the impact of Foreign Direct Investment on economic growth and other relatively important factors which stimulate the process of economic growth in the economy of Cameroon between the periods of 1970 to 2012 by conducting the Autoregressive Distributed Lag (ARDL) Bounds testing approach for analysing the growth model derived. In order to explain the changes occurred in real GDP over the study period, the model retained two domestic factors (capital stock, and labor force), and one external factor Foreign Direct Investment (FDI) as independent variables. Recent analytical techniques have been used to diagnose and check properties of time series data then, the model has been estimated to determine the short and long-term elasticities and their significance. The empirical results points out that in the short and long-term, domestic capital stock and labor represent the driving forces for economic growth in Cameroon. In addition, FDI was found to have a positive but insignificant impact on economic growth in both the long and short-term periods in the case of Cameroon. Error-correction model has been used to support the existence of a stable long-term relationship and confirm a deviation from the long-term equilibrium following a short-term shock corrected by approximately 13 percent after each year. Keywords: Economic Growth, Investment, FDI, labor, ARDL, Cameroon Economy