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<p>This paper examines how foreign direct investment (FDI) affects regional inequality in Ghana, with particular attention to heterogeneous effects across economic sectors and source countries. Using a novel panel dataset spanning 27 years (1994–2020) across Ghana's regions, we employ panel estimators to address endogeneity concerns and persistence in inequality patterns. We find that aggregate FDI has a modest but statistically significant inequality-reducing effect, with elasticities ranging from −&#xa0;0.013 to −&#xa0;0.082 across specifications. Importantly, our sectoral analysis reveals that manufacturing FDI demonstrates the strongest equalizing impact (−&#xa0;0.015), while investments in services show no significant effects. Additionally, we document that Chinese investments yield stronger inequality-reducing outcomes (−&#xa0;0.021) compared to Western investments. These findings suggest that Ghana's removal of minimum capital requirements for manufacturing was well targeted from a distributional perspective. Our study contributes to the literature by providing rigorous causal evidence on the distributional implications of FDI's sectoral and origin-country composition, moving beyond aggregate analyses that dominate existing research. A key limitation is our reliance on regional-level data that may mask within-region inequalities. Our findings highlight the importance of sector-specific investment promotion policies that leverage manufacturing's stronger potential for generating cross-regional spillovers.</p>

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Foreign direct investment and spatial inequality in Ghana: investigating sector-specific and origin-country differences

  • 期刊论文

  • 发表日期：

    2025年11月5日

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  • Christian S. Otchia,
  • Ernest Agbeko

摘要

This paper examines how foreign direct investment (FDI) affects regional inequality in Ghana, with particular attention to heterogeneous effects across economic sectors and source countries. Using a novel panel dataset spanning 27 years (1994–2020) across Ghana's regions, we employ panel estimators to address endogeneity concerns and persistence in inequality patterns. We find that aggregate FDI has a modest but statistically significant inequality-reducing effect, with elasticities ranging from − 0.013 to − 0.082 across specifications. Importantly, our sectoral analysis reveals that manufacturing FDI demonstrates the strongest equalizing impact (− 0.015), while investments in services show no significant effects. Additionally, we document that Chinese investments yield stronger inequality-reducing outcomes (− 0.021) compared to Western investments. These findings suggest that Ghana's removal of minimum capital requirements for manufacturing was well targeted from a distributional perspective. Our study contributes to the literature by providing rigorous causal evidence on the distributional implications of FDI's sectoral and origin-country composition, moving beyond aggregate analyses that dominate existing research. A key limitation is our reliance on regional-level data that may mask within-region inequalities. Our findings highlight the importance of sector-specific investment promotion policies that leverage manufacturing's stronger potential for generating cross-regional spillovers.