Foreign Direct Investment, Gross Capital Formation, Foreign Remittances, and Economic Growth in Zimbabwe

Abstract

Research background Capital investment financing has been cited as a critical element in economic growth the world over although there is no consensus regarding the significance, direction, and magnitude of the relationship. Purpose The article investigated the relationship between foreign direct investment, gross capital formation, personal remittances, and gross domestic product in Zimbabwe from 1960–2020. Research methodology The random effects model was used to examine this relationship using data collected from the World Development Indicators database. The random effects model was selected after performing the Hausman test. Results All the regression coefficients of the country’s gross domestic product reveal a direct or positive relationship with the three independent variables. Furthermore, the study reveals that gross capital formation had the highest contribution to Zimbabwe’s gross domestic product compared to that of foreign direct investment and personal remittances for the period under study. The coefficients of determination of the independent variables were significant. In other words, foreign direct investment accounted for 57.24%, gross capital formation 68.47%, and personal remittances 48.76% to foreign direct investment for the same period. Novelty The article closed the gap in knowledge by drawing attention to the relationship between foreign direct investment, gross capital formation, personal remittances, and gross domestic product in Zimbabwe.