International Journal of Science, Engineering and TechnologyAuthors: Emmanuel Conteh, Kalie Marah
Abstract: This study looks at the relationship between foreign direct investment (FDI) and economic growth in Sierra Leone from 2000 to 2024, which is a small mineral-rich post-conflict economy with limited single-country dynamic evidence. The study uses annual data on GDP growth, net FDI inflows, gross capital formation, trade openness, and consumer price inflation, and applies the autoregressive distributed lag (ARDL) bounds-testing approach within an unrestricted error-correction model (UECM) and Granger causality and interaction-term moderation analyses. The results of the augmented Dickey-Fuller tests suggest mixed integration orders, with the GDP growth being stationary at level, while the other variables are integrated of order one, which is suitable for the ARDL framework. The bounds F-statistic for the ARDL(1,1,1) model with FDI and trade openness is 5.346, which is statistically significant, indicating a long-run relationship. The error-correction term is negative and highly significant (-0.936; p = 0.001), suggesting that about 94% of the short-run deviations from equilibrium are corrected each year. The long-run FDI coefficient is positive (0.535), but the estimate is not precise, and the short-run effect is not statistically significant. The Granger tests indicate that there is no significant short-run bidirectional causality, while long-run equilibrium-correcting causality is confirmed from the block FDI-openness to growth. The results of the moderation analysis are weak evidence of substitutability through trade openness, and domestic investment does not have a significant moderating effect. The results highlight the importance of absorptive capacity, institutional quality, and diversified trade linkages in fostering sustainable economic growth from FDI.
