Foreign direct investment and export performance in Ghana: Modeling uncertainty using Bayesian Model Selection Approach

Abstract

This paper employs the Bayesian Model Selection (BMS) to determine the link between Foreign Direct Investment (FDI) and export performance in Ghana. The BMS enables us to consider a large number of potential explanatory variables and deal with the issue of model uncertainty. The study revealed positive effect of FDI on export performance but not as a major driver of export growth in Ghana. However, the effect of domestic savings, trade liberalisation and infrastructure development are found to have stronger effect on export performance than FDI inflows. The study recommends government policies should be geared towards improving domestic savings and the liberalization of the economy towards international trade.