Evaluating the Impact of Foreign Direct Investment on Economic Growth in Zambia;1996-2020

Zambia has sought to attract foreign direct investment because of the many benefits that it brings to the economy. Foreign direct investment is considered beneficial not only because it brings in much-needed capital but also because it generates employment and provides access to advanced technologies and other spillovers. It has been argued that foreign direct investment has a positive impact on the economic growth of the host country by reducing inflation, unemployment, interest, and the national saving rate. This motivated the conduct of this study. The aim of this study was to establish the relationship between FDI and a country’s economic growth, in the case of Zambia from 1996 to 2020, with the purpose of providing knowledge and information to the government, potential investors, and academia on how FDI can contribute to the economic growth of the country. The study was designed with a case study nature and made use of secondary data accessed from UNCTAD, the World Bank, the Bank of Zambia, CSO, etc. and analyzed using an econometrics software known as EViews. The main findings are that the inflow of foreign direct investment varied at a decreasing rate from 1996 to 2020. The results justify the decreasing rate due to the to the global pandemic and a reduction in mining activities. Further, it was found that overall, FDI leads to economic growth. Although the results show that FDI leads to an improvement in interest, unemployment, and the national saving rate, the impact was not significant. However, the results show that FDI has a significant impact on inflation. Hence, the government should build stronger and also safeguard its relationship with foreign investors, as they are key partners in fostering the economic growth of the country.