The relationship between FDI and ODA: The case of Zimbabwe (1980-2012)

Abstract

Zimbabwe, like most developing countries is a recipient of foreign aid but the impact of this official development assistance (ODA) on foreign direct investment (FDI) has not been investigated. The study investigates the existence of a relationship between ODA and FDI over the period 1980-2012. The investigation is done within the vector auto regression (VAR) framework making use of OLS, Granger Causality, impulse response functions and variance decomposition with the hypothesis that ODA has positive relationship with FDI. We find no evidence of a relationship between ODA and FDI in Zimbabwe and there is neither correlation nor causality between these flows. In light of these findings, Zimbabwe should make deliberate actions to create the necessary domestic and international conditions that facilitate foreign direct investment. This will include but not restricted to addressing political uncertainties, debt overhang, downside risks in agriculture, dilapidated infrastructure, and an unreliable power supply.