The Effects Of Foreign Direct Investments On The Economic Growth Of The Republic Of The Congo

Currently,both developing and developed countries are increasingly attracting more foreign direct investment(FDI),and they consider FDI as the primary strategy fortechnology and innovation transfer.This trend is the basic way how the world economy evolves in recent years.Moreover,the effect of such approach is gradually changing in increasingly complex environment too.In such a world economic environment,the free flow of overseas capital and commodities is becoming a highlight.Thus,FDI is increasingly becoming a new method to promote the economic growth of the Republic of the Congo and other African countries.The contribution of investment from overseas,including China,to the economic growth of the Republic of the Congo seems to be the most important issue.Under the backgroundthat the country unableto implement satisfactory economic growth due to the insufficient domestic resources,the input of overseas direct investmentcan not only make up for the capital gap,but also catalyze the economic growth.However,in the economy of the Republic of the Congo,controlling the negative effect of these funds on economic growth deserves much attention while actively attracting new capital inflows.The purpose of this study is to make people understand the actual impact of FDI on the Congolese economy,therefore,we must empirically analyze two problems: first,contribution of FDI to economic growth;second,spillover effectof FDI on many key determinants of economic growth.The main purpose of this study is to analyze the specific effect of FDI on the economics growth of the Republic of the Congo.Under the background that the country is actively attracting new FDI,it seems necessary to investigate the actual effect of FDI on the Congolese economy and effectively control it.This study is not only favorablein understanding the contribution of FDI to economic growth,but also providing references for the political decision-makers that formulate FDI economic policy guidance.This paper is divided into five chapters.The first chapter is a basic theoretical frame of the research.By introducing the background and FDI issues,this chapter discusses the FDI in the Republic of the Congo,and puts forward the unsolved problems on the FDI in the Republic of the Congo.Foreign direct investment plays an important role in the realization of development goals from governments.If appropriate policies are formulated,the increase of FDI could lead to positive spillover effects,including capital inflow,job creation,increase of government revenue,technology transfer and human capital construction.FDI could also support the Republic of the Congo in strengthening its integration into regional and international value chains.In addition,a feasible legal and institutional frame favors to limit the potential risks associated with FDI,such as the removal of labor by transnational corporations,the expulsion of domestic enterprises and harmful effects on the environment.The second chapter is a literature review,which aims to explore and determine the relationship between FDI and economic growth.This chapter first summarizes the literature on the effect of FDI on growth,then sort out the theories of FDI,endogenous growth,and the empirical analysis methods of the effect of FDI on growth.In the empirical literature on the effect of FDI on growth,this paper reviews the spillover effect of FDI on the host country’s economy,because these researches especially emphasize the effect of FDI on employment,poverty reduction,technology transfer,domestic investment and foreign trade,as well as the formation of human capital that could control them.In view of the topic of this study is to analyze the effect of FDI on economic growth,the attention are mainly concentrated on the studies of spillover effect of FDI on domestic investment,export and human capital.The purpose of the third chapter is to qualitatively discuss the relationship between FDI and economic growth.Firstly,the focus is on the definition of the concept of economic growth and the application of the theory about its origin.Secondly,selecting the main analysis methods to deal with the relationship between FDI and economic growth.The fourth chapter is a quantitative analysis to the effect of FDI on the economic growth of the Republic of the Congo from 1960 to 2020.This chapter takes advantage of the simultaneous equation structural model to test whether FDI has a significant contribution to the economic growth of the Republic of the Congo,and whether FDI stimulates domestic investment,promotes exports and improves human capital.Therefore,a structural analysis is conducted around five main variables,namely: foreigndirect investment(FDI),gross domestic product(GDP),domestic investment(DI),export and human capital(KH).Such variable selection is reasonable because FDI inflows could explain an economy’s growth rate,but also the growth rate could constitute a factor in the attractiveness of FDI flows.In addition,some variables affect both the inflow and growth rate of foreign direct investment simultaneously.In order to avoid the endogeneity between explanatory variables,the simultaneous equation model of endogenous growth,FDI and some decisive variables of attraction and economic growth are used to analyze the attraction to FDI,which is appropriate for causal sequence of FDI to growth.In this case,estimating a structural model with simultaneous equations may take into account this interdependence and the dual status of some variables,and the deviation of the estimation equation is greatly reduced.The last chapter gives the empirical results,explanations and suggestions.This chapter comprehensively analyzes the impact of FDI on the economic growth of the Republic of the Congo.The empirical results reveal that FDI made positive and significant contributions to the economic growth of the Republic of the Congo,namely,for every 1% increase in FDI,GDP will increase by 0.032%.Thus the hypothesis of FDI spillover effect are partially verified.Indeed,the results of these estimates show that FDI has a crowding-out effect on domestic investment and a neutral effect on exports and human capital.At the end of the econometric analysis of simultaneous equation model,it is found that FDI has a crowding-out effect on domestic investment and neutral effect on export and human capital.The crowdingout effect of foreign direct investment on domestic investment is mainly due to the difficulty of local entrepreneurs in obtaining credit for the interests of foreign investors.Besides,the neutral impact of FDI on exports is reasonable because few MNCs exporting from the Congo exist and there are no export-oriented MNCs.Finally,the reason that FDIcould not contribute to the improvement of human capital is attributed to the weak absorptive capacity of the Congolese economy.However,this research is still very limited.Due to the lack of sufficientdata,the spillover effect of FDI in this paper is not comprehensive enough.For example,the impact on employment,wages and technology transfer cannot be implemented.In addition,the effect of FDI on the output of various sectors of the economy is neglected.These impacts and improvement of these recommendations seems important.Finally,the actual impact of FDIon human capital is also ignored in this paper.It is necessary to make further analysis for these problems in the future...