Impact of foreign direct investment on Zambia's export performance (1970-2012)

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Msoni, Jonathan
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University of Zambia
Zambia has sought to attract Foreign Direct Investment because of the many benefits that it brings to the economy. Foreign Direct Investment is considered beneficial not only because it brings in the much needed capital, but also generates employment and provides access to advanced technologies and other spill-overs. It has been argued that Foreign Direct Investment has a positive impact on the export performance of the host country because they exploit the host factor endowments there by lowering their production cost and increasing their export competitiveness. The main purpose of this study was to ascertain the impact of Foreign Direct Investment on Zambia’s Export performance covering the period from 1970 to 2012. The study reviewed both theoretical and empirical work on the relationship between exports and Foreign Direct Investment. The study employed the Single Equation Error Correction Model. The results of the Augmented Dickey Fuller unit root test showed that the time-series data were non-stationary at levels, but become stationary in the first differences. The study reviewed, that in the short run foreign direct investment were not contributing to the export performance, while in the long run, the coefficient of FDI variable was found to be negative, but there was no statistical evidence, at all conventional levels of significance, to claim that foreign investment did not improve export performance. This evidence could be attributed to the fact most FDI inflows are concentrated in the mining sector. FDI inflow in the mining sector has exploited Zambia’s rich resources, but there is an opportunity for Zambia to attract other export-oriented FDI in other sectors which are not yet fully explored, this is provided by Zambia’s abundant access to important markets under various preferential trade schemes. Export oriented FDI could also be indirectly targeted by means other than incentives, i.e. by providing specific services, infrastructure or human resources that are possibly required by the export oriented firms.
Master of Arts-Economics
Investments, Foreign--Zambia , Zambia--Economic conditions--1970-2012 , Zambia--Foreign economic relations