Foreign direct investment and its impact on economic growth and gross domestic savings : The case of Zambia, 1970 to 2000

Zambia has for a long time experienced declining economic growth despite having
inherited very generous reserves at independence in 1964. To reverse this trend she has tried, though inconsistently and often piecemeal to implement liberalization policies aimed at attracting Foreign Direct Investment (FDI) that is conceived as desirable to stimulate domestic savings and economic growth. There is, however, a dearth of empirical studies on the extent to which FDI has contributed to economic growth and
gross domestic savings in Zambia. Thus this study proposes to evaluate this by applying a
country-specific approach, while embracing the views of both the conventional and the
radical schools of thought. Using a dataset assembled from secondary sources and refined
using interviews with officials from both public and private organisations the study
employs ordinary least squares estimation procedure to examine the impact of FDI on
economic growth and gross domestic savings in Zambia, and specifically applies an error
correction model procedure to abstract the short- and long-run information in the
modelling process. The results of the study show that FDI has had a positive, but minimal
impact on both economic growth and gross domestic savings in Zambia. Thus, from a
policy perspective, FDI may not be an unconditional panacea for Zambia's declining
economic trends unless considerations are given to the preconditions for ensuring its
successful use.