The Determinants of the Inflow of Foreign Direct Investment (FDI) into the Economy of Ghana

In recent times, governments of many developing countries are progressively inviting foreign investors to invest in their countries, in order to enjoy the numerous benefits of Foreign Direct Investment (FDI). FDI is seen as a key element that improves domestic savings, creates employment opportunities and enhances economic growth of host countries. The main thrust of study is to examine the key factors that influence inflow of foreign direct investment into the economy of Ghana for the period 1990-2010. The Study used only secondary data. From the result, the FDI pattern shows a fairly stable trend with slight climbs and declines from 1990 to 2005 followed by a tremendous rise in the trend from 2005 to 2008. After the 1st differencing to achieve a stationary series, an ARIMA model of (0, 1, and 0) was obtained. In finding out the determinants of FDI inflows, multiple regression analysis was used. Findings of the study confirm a significant positive and strong relationship between foreign direct investment and three of the variables: Gross Domestic Product, Government expenditure and Labor force. The Population variable, however, showed a significantly huge negative influence on FDI inflows. In order to attract more FDI’s, Ghana need to increase its GDP; its government expenditure on goods and services that induce demand for its domestic goods and service; as well as widen the quantum of her population that is actively involved in the production of goods and services.