Endogenous Growth Theory Essay

CHAPTER ONE
INTRODUCTION

Background of the study
In the 1960s, Africa has seen a wave of political independences in several countries of the continent. These plunge African leaders in a skepticism fearing that economic development could lead to environmental pollution and the loss of their political power (Njong 2008)
However, the economic slowdown experienced by African countries between 1970 and 1990 has increased the need for more FDI inside the continent. Before the independence of Cameroon, the government tried to encourage inflows of foreign capital (FCI) in the economy. At the national level, the government has established a series of legal instruments to encourage and boost the inflow of foreign capital Among which are: the investment

The literature on endogenous growth theory explains that they are three major channels through which FDI affects growth. First, by introducing new technologies and new inputs, FDI increases capital accumulation in the host countries (Borensztein et Al, 1998). Second, by training workers and managers on the job, FDI increases the levels of knowledge and skills in recipient countries (de Mello, 1999). Third, by overcoming barriers to entry and by reducing the market power of existing firms, FDI boosts competition among the industries in the recipient countries.
The role of FDI in recipient countries is suggested by several empirical studies as an important source of capital. Chowdhury and Mavrotas (2005), explain that FDI complements domestic investments, improves human capital, increases the level of technology, and stimulates overall economic growth in the host countries. However, some studies carried out at the level of firms such as that by Carkovic and Levine (2005), and that by Gorg and Greenway (2004), do not support the view that FDI plays a positive role by boosting growth in the host