Al-Hikmah University Journal

Foreign Direct Investment is seen as an important source of economic growth in the present global economic environment. Most countries strive to attract FDI because of its acknowledged advantages as a tool of economic development. Thus, the study has the specific objectives of investigating empirically the effect of FDI on economic growth and sectoral output growth from 1980-2020. To achieve these objectives, data were obtained from World Bank’s World Development Indicators. Neoclassical growth model was used as a theoretical background in the study. The study estimated unit root test using Augmented Dickey-Fuller test, it was discovered that government final consumption expenditure, export of goods and services, and gross fixed capital formation were significant at first difference while other variables were significant at level. As a result, regression analysis, using Autoregressive Distributive Lag technique was employed. The results show that current foreign direct investment has positive effect on economic growth, FDI 3 years ago has positive effect on manufacturing output growth and finally, current FDI has negative effect on agricultural output growth. Based on these findings, it was recommended among others, that policy makers should target policies on promoting FDI inflow in order to achieve increase in manufacturing output growth and economic growth.