Impact of external debt on foreign direct investments in Zimbabwe
DOI:
https://doi.org/10.18533/pdq29438Keywords:
External Debt, Foreign Direct Investments, Autoregressive Distributed Lag, CausalityAbstract
Using the framework of capital market and fitness theory, the study assessed the impact of external debt on foreign direct investment in Zimbabwe for the period 1980 to 2016. An Autoregressive Distributed Lag estimation technique was used on the annual data for the period 1980 to 2016 as it suits well small sample size. The results revealed that there is both a short-run and long-run relationship between external debt and foreign direct investment. The findings of the study also revealed that external debt positively impacts foreign direct investment inflows. The study concluded that the existence of debt overhang, as a consequence of the accumulation of past external debt stocks, negatively impacts foreign direct investment inflows. The study recommended that the government of Zimbabwe should intensively invest in economic growth-enhancing activities in the agricultural sector, infrastructure sector, education sector, healthcare sector, and technology, and foster a politically conducive environment.
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