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studies suggest at best a very complex and ambiguous relationship between trade restrictions and growth. The endogenous growth literature has been diverse enough to provide a different array of models in which trade restrictions can decrease or increase the worldwide rate of growth (Romer, 1990; Grossman and Helpman, 1990; Rivera-Batiz and Romer, 1991; Matsuyama, 1992). Note that if trading partners are asymmetric countries in the sense that they have considerably different technologies and endowments, even if economic integration raises the worldwide growth rate, it may adversely affect individual countries.

Numerous empirical studies at the firm, industry and economy-wide levels confirm that technical change and technological learning are important determinants of economic growth (Temple, 1999). Transnational corporations/ Multinational Enterprises are responsible for much of this technological accumulation, yet growth theory rarely acknowledges the important role that these organizations play. In neo-classical analysis, FDI does not influence the long-run growth rate, but only the level of income. An exogenous increase in FDI would increase the amount of capital (and output) per person, but this would only be temporary, as diminishing returns (on the marginal product of capital) would impose a limit to this growth. FDI can influence the long-run growth rate only through technological progress or growth of the labour force, which are both considered exogenous.

If FDI is not only finance but also a bundle of fixed assets, knowledge (codified and tacit) and technology, then it can be expected to generate growth endogenously. According to recent endogenous growth theory, FDI influences growth via variables such as R&D and education (or human capital) (Romer, 1986; Lucas Jr., 1988). Even if diminishing returns prevail inside the enterprise, various externalities (outside the enterprise) can provide the necessary positive feedback to sustain growth in the long run. Transnational corporations 27

Profile for Abubakari Zakari

Impact Analysis of foreign Direct Investment on Economic Growth in Ghana  

FDI and economic growth in ghana

Impact Analysis of foreign Direct Investment on Economic Growth in Ghana  

FDI and economic growth in ghana