Investigating the effects of foreign direct investment on export growth in cameroon1

The theoretical relationship between FDI and export growth can be explained by using the flying geese model, Vernon’s product life cycle theory and the new growth model. These three theories have different explanations of FDI flows; however, they all agree that FDI has an influence on the recipient economy. First, MNE subsidiaries exploit the host country’s factor endowments for lowering production costs to increase their export competitiveness. Therefore, the host country’s export expansion by MNE subsidiaries is to be expected (capacity-increasing effect). Secondly, the host country’s export can be increased by domestic firms through the spillover effects of FDI such as competition and transfer of knowledge (spillover effect). This study attempts to estimate the potential effects of FDI inflows on export growth in Cameroon over the 1980-2003 period. We separate the effects of FDI into supply capacity-increasing effects and spillover effects. The major hypothesis of the study is that FDI has had a positive impact on Cameroon export performance. Using the Engle-Granger two-step co-integration procedure we find evidence that FDI inflows contributed to higher supply capacity and spillover effects in Cameroon, leading to higher export growth during the period of study.