Impact of Foreign Direct Investment on Price Stability in SSA Countries

By: Wilfred Ositaufere, Ekpendu Ezechimere Justice, Nwoba Amos Jeremiah

Pages: 283–296, Volume: 2, Number: 2

Published by: AEFUNAI Journal of Economics, Finance and Development Studies, Alex Ekwueme Federal University, Ndufu-Alike, 9/1/2025, 2025

ISSN (Electronic): 2536-6742

DOI: 10.48028/iiprds/aefunaijefds.v2.i2.15

Impact of Foreign Direct Investment on Price Stability in SSA Countries

Abstract:

The growing foreign direct investment (FDI) inEows into Sub-Saharan Africa amidst increasing global economic integration, and the unclear role FDI plays in inEuencing price stability. Given persistent inEation in the region and limited research on FDI’s effect on domestic prices, the study seeks to investigate the impact of Foreign Direct Investment (FDI) on price stability in Sub-Saharan Africa. This study employed a quantitative ex post facto approach using panel data from 25 SSA countries over the period 2000–2022. The findings indicate that while FDI, unemployment, and exchange rate factors tend to push CPI upward in the long run, RGDP and interest rate exert a stabilizing (negative) force on inEation. In the short run, the effects remain mixed and largely insignificant; however, the presence of a significant error correction mechanism suggests that deviations from long-run equilibrium are corrected at a decent pace. Consequently, policymakers should move beyond passive FDI attraction and implement a deliberate strategy that channels FDI into sectors with transformative potential, while maintaining a stable macroeconomic environment. This integrated approach will not only maximize the developmental benefits of FDI but also ensure that capital inEows do not fuel inEationary cycles, thereby advancing sustainable price stability across SSA economies.

Keywords: Foreign Direct Investment (FDI), Price stability, Inflation, Sub-Saharan Africa