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This is a Quantitative Study study.

October 9, 2025

An Empirical Assessment of the Impact of Trade Balance, Foreign Direct Investment (FDI), And Public Debt on Economic Growth in Liberia (2008–2023)

Key Points

FDI significantly increases GDP growth in the short run by 0.922%, but negatively impacts growth long-term.
Public debt suppresses GDP growth both nationally and long-term, demonstrating ongoing fiscal challenges.
Trade balance shows no significant effect on GDP growth despite ongoing deficits, indicating complex economic dynamics.
The findings underscore the need for structural reforms and improved fiscal governance in Liberia.

Abstract

This study examines the impact of trade balance, foreign direct investment (FDI), and public debt on economic growth in Liberia from 2008 to 2023, a period marked by post-conflict recovery, external shocks, and the COVID-19 pandemic. Employing a Vector Error Correction Model (VECM) using time-series data from the Central Bank of Liberia, the analysis uncovers both short-run and long-run effects. The results show that FDI significantly increases short-run GDP growth, with a 1% increase contributing to a 0.922% rise (p = 0.002), but negatively affects growth in the long run (coefficient = -0.709, p < 0.01). Public debt consistently suppresses GDP, both in the short run (−0.153%, p = 0.016) and long run (−0.435, p < 0.01), reflecting fiscal vulnerabilities. Trade balance, despite persistent deficits, has no significant effect in either the short or long run. These findings highlight the transient benefits of FDI, the detrimental effects of mounting debt, and the complex neutrality of trade imbalance. The study advocates for fiscal discipline, structural reforms, improved FDI governance, and export diversification to secure sustainable growth. Its implications offer empirical insights tailored to Liberia’s policy context and broader lessons for small, open, post-conflict economies.

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