Impact of mining-FDI on Extractive Sector Growth and its Spillover Effect on Non-Extractive Sector Growth: The Case of Ghana

Abstract

This paper assesses the impact of mining-FDI on extractive sector growth and its spillover effect on non-extractive sector growth in Ghana. Extractive sector output growth is modelled as a function of mining-FDI and vector of theorized correlates of extractive sector growth. The autoregressive distributed lag (ARDL) estimation technique was employed on a time-series data over two periods, 2000–2021 and 1990—2021 based on data availability on the different variables of interest. The findings reveal that mining-FDI significantly promotes both extractive sector output growth and overall economic growth in the long run. Additionally, extractive sector resource rent has a positive and significant spillover effect on the non-extractive sectors, with agriculture being the largest recipient, followed by the manufacturing and service sectors. Finally, control of corruption is instrumental in translating the revenues generated from investments in the extractive sector into growth in non-extractive sectors. On the policy front, the paper emphasizes that policies that channel extractive sector FDI into processing the natural resources before exports will ensure that more of the wealth generated from the extractive sector are retained within the country to promote employment, industrial expansion and economic diversification