THE IMPACT OF TRADE LIBERALIZATION AND FOREIGN DIRECT INVESTMENT FLOWS ON ECONOMIC GROWTH

Abstract

Economic growth is one of the important issues for any country of the world, because countries can achieve through it the process of economic development, thus, all countries seek to increase their rates of economic growth. The increase of economic growth could be happen through different ways, such as trade liberalization and foreign investments. The great competition between the countries of the world to liberalize trade and attracting foreign direct investment is the factor that make the study seeks to identify the situation of trade liberalization and foreign direct investment in the Sudan and study their impact on economic growth. The main objective of this study is to investigate and assess the impact of trade liberalization and foreign direct investment of the Sudan on the economic growth in Sudan during the period 1972-2010 based on time series data. Also, the study evaluates the impact of other controlling variables on economic growth such as domestic investment, literacy rate and petroleum exports as a dummy variable, using cointegration procedure and ordinary least squares method (OLS). The study reveals that foreign direct investment has a weak positive impact on economic growth where an increase in FDI by 1% leads to an increase in the economic growth at a rate of 0.028%. This result had been interpreted by that most of foreign direct investment in Sudan during the study period was concentrated in unproductive sectors such as services sector. Also the study finds that there is a negative relationship between trade openness and economic growth of Sudan, since an increase of trade openness by 1% would lead to a decrease in economic growth by 0.30%. This result had been referred to the problems that face Sudanese agricultural exports during the production process until the exportation phase. These problems were the weakness of infrastructure, fluctuations of world prices, low government subsides and other obstacles. In addition to these problems, the permanent deficit of the Sudanese trade balance during the study period. Concerning the controlling variables, the study found that the domestic investment has a weak positive impact on economic growth. As for the literacy rate, the results showed that it is insignificant. This result had been expressed by the belief that the Sudan is considered as a source of labor exportation for the neighboring countries where there had been huge immigration among educated labor. This emigrated labor force could have been playing a great role in the production process and then in the economic growth. Also, the results showed that the petroleum exportation is insignificant. The study had attributed this result to the fact that the revenues of petrol exports had been divided between the Sudanese government, foreign companies and the Southern Sudan. The study main recommendations include the call for the government to improve the investment environment in order to increase the volume and amount of foreign direct investment that flows to Sudan. Also, the study urge the government to continue its policy of market openness towards external markets through the designing of polices that aim at promoting Sudanese exports