The Macroeconomic Impact of Foreign Direct Investment on Host Country: Case Study of SADC

The effect of foreign direct investment (FDI) on gross domestic product (GDP), gross capital formation (GCF), exports and unemployment is examined in a panel of six Southern African Development Community (SADC) countries over a time period (1991-2015). Spatial patterns and/or unobserved common factors can be assumed to be shared among these countries due to the presence of cross-sectional dependence. A long run relationship between the variables is established through the co integration test. Due to the homogeneous characteristic of the panel data diagnostic tests were conducted and the dynamic Driscoll-Kraay estimator, with fixed effects, was shown to be satisfactory to produce robust results given the violation of some assumptions in the panel like heteroscedasticty and cross-sectional dependence. The results align with the hypothesis that FDI does generally have a positive and significant effect on SADC. Keywords: Macroeconomic variables, foreign direct investment, panel data, driscoll kraay estimator.