The Impact of Foreign Direct Investment on Economic Growth in Zambia : A study in the context of a natural resource dependent economy

This study looks at the impact of foreign direct investment on economic growth in Zambia in the context of a natural resource dependent country. With over 80% of all FDI being channelled to the mining sector, the study investigates whether this structure could have an influence on the level of impact exerted by FDI. It uses exploratory data analysis to investigate the relationship between FDI flows and Gross Domestic Product (GDP). The main analysis is based on time series data from 1990 to 2013. The base year 1990 was selected specifically because this was a transition year which lead to the shift into a liberalised economy and increased FDI inflows. Prior to 2000, FDI was spread over other sectors in the economy. However, after that it is concentrated in the mining sector, averaging over 50% of total FDI. The study finds that the impact on growth is greater prior to 2000 than after. The study also finds that FDI contributed to increasing output in the mining sector due to recapitalization but this in turn has not resulted in dynamic growth for the economy. The study therefore concludes that FDI has not contributed to dynamic economic growth because it has been concentrated in mining sector. What it has done is reinforce dependence on the mining sector.