Assessing the Nexus between Foreign Direct Investment and Total Factor Productivity Growth: Empirical Evidence from Madagascar

The purpose of this research is to provide new empirical evidence on the impact of FDI on the growth of Madagascar's total factor productivity (TFP) over the period 1990 to 2019; the method was based on the VECM model. Our finding reveals that TFP and FD have a favourable correlation, and FDI has a more significant impact on TFP growth; it can serve as an engine for transmitting new technologies. However, exchange rates and trade openness have an adverse and insignificant effect on long-term and short-term economic growth. Otherwise, inflation has a negative impact in the long run and a positive impact in the short run. We, therefore, conclude that financial development may increase the effects of FDI on TFP growth in Madagascar when a country's economy has reached a high level of economic development.