Modeling Long-Run Relationships between Transport, FDI, Human Capital, and Economic Development in 25 African Countries

Abstract

This study aims to investigate the longterm relationships between foreign direct investment (FDI), human capital accumulation, freight transportation, and economic growth in 25 African countries across three distinct regions—Southern Africa, Central Africa, and North Africa—over a span of 25 years (1995- 2020). Employing fully modified ordinary least squares and dynamic ordinary least squares estimators, the empirical analysis reveals bidirectional and predominantly positive long-run relationships between the variables. However, certain linkages demonstrate unidirectional trends, particularly the relationship between FDI and human capital in Southern and Central African regions, albeit with minor statistical significance. Notably, negligible associations were found between freight transportation and human capital across all cases. The findings underscore the significant impact of an efficient transportation system on facilitating FDI inflows, substantially contributing to the development of human capital—a pivotal driver of long-term economic growth in recipient countries. Finally, robustness checks to validate the results through the GMM estimators are performed. The implications suggest the crucial role of enhancing transportation infrastructure in fostering FDI and subsequently nurturing human capital, thereby fueling sustained economic growth in these African nations.