Effects of Foreign Direct Investment on Zambia's Exports

Abstract

Foreign Direct Investment (FDI) is commonly viewed as an important contributor to export growth in host countries. It promotes human capital development by improving worker’s skills as well as managerial and technical expertise, thereby increasing productivity and efficiency. These improvements enhance a country’s competitiveness in international markets. In addition, FDI provides access to global production networks and foreign markets, which can stimulate export growth. Due to these potential benefits, Zambia has continued to attract FDI as part of its export-led growth strategy. This study examined the effect of Foreign Direct Investment on Zambia’s export performance over the period 1993 to 2024. The study employed the Autoregressive Distributed Lag (ARDL) approach, while the Augmented Dickey-Fuller (ADF) test was used to test for unit roots. The results indicated that the variables became stationary at first difference, I(1). The Bounds test further confirmed the existence of cointegration and a long-run relationship among exports, FDI, Gross Domestic Product, and inflation. The Error Correction Model (ECM) was applied to estimate the short-run effects. The findings revealed that FDI had a negative and statistically insignificant effect on exports in the long run, but a negative and significant effect in the short run. This may suggest that Zambia mainly attracts market-seeking and efficiency-seeking FDI, which focuses more on domestic demand and low-cost production structures rather than export expansion. The study further recommends the diversification of FDI into sectors beyond mining in order to expand export opportunities in other international markets. Additionally, policies aimed at attracting export-oriented FDI should be strengthened through the provision of appropriate infrastructure, specialized services, and skilled human capital required by export-oriented firms.