Impact of Foreign Direct Investment on the Mining Industry of Ghana: The Mediating Role of Institutional Quality

Abstract

After the debt crisis of developing nations in the late 1980s, which affected creditworthiness, foreign direct investment (FDI) started to be seen as the primary driver of growth in the developing world, especially in Africa. As a result, there was a sharp increase in foreign investment in this region of the world, with emerging nations receiving a larger proportion of the inflows. Even though foreign direct investment (FDI) is often regarded as the catalyst for economic growth and the entry point to development for developing nations, including Ghana, there is a notable disparity between the region's poor institutional governance and FDI flows, particularly in the natural resource sector. This study aims to fill this gap by investigating the impact of mining FDI as part of capital or labor that flows to developing economies including the Ghanaian economy with a sharp focus on the mediating role of institutional governance. Data from the World Development Indicators (WDI) website were utilized over the whole study period, including all variables. As a result, these variables constitute secondary data that is made available to the public on the website. The study employs annual time series data spanning the period 1996 - 2020. The Augmented Dickey Fuller (ADF) test is employed to check for stationarity and order of integration. The Phillips Perron test was also performed as a robustness check to the ADF test. To determine if unit roots are present in the time series data used for the investigation, a stationary test is run. The findings showed that, among other factors, trade openness and market size had a major impact on FDI's motivations in Ghana. Overall, the implications of the study’s results extend beyond academic research to inform policy formulation, investment decision-making, and corporate practices in the mining sector, with the ultimate goal of fostering inclusive and sustainable development.