Foreign direct investments, institutional structure and economic growth in Sub-Saharan Africa

Economic growth is desirable for improved macroeconomic performance in Sub-Sahara Africa (SSA). Economics literature documents that foreign direct investment (FDI) promotes economic growth when the economy’s absorptive capacity is adequate. Though data show that SSA countries are both the destinations and sources of FDI flows, economic growth remains low. Hitherto, studies on SSA neither considered the effects of FDI outflows nor the relevance of institutional structure in the FDI-economic growth nexus, thereby misrepresenting FDI-economic growth relationships. Therefore, using 27 years (1996–2022) data from 29 SSA countries, this study deployed the System-GMM to examine the SSA’s FDI-economic growth nexus and the role of institutional structure. Results showed that FDI inflow and outflow promoted economic growth, while weak institutional structure dampened the economic growth effects of FDI flows. Therefore, the paper emphasized the need for more FDI flows, strengthened institutions, and deepened financial sectors to enhance economic growth.