The Effects of Foreign Direct Investment and Official Development Assistance on the Human Development Index in Africa

Africa is a changing continent. Although it is home to some of the world\u27s most impoverished nations, over the last ten years Africa has seen tremendous economic growth and many organizations contributing to this change. International development organizations and governments alike are seeking the best ways in which to accelerate these accomplishments to achieve the Millennium Development Goals. As such, this study seeks to update the literature on the effects that two of the largest foreign funding mechanisms have on the development of the continent. Foreign direct investment (FDI) inflows to the continent reached $42 billion dollars in 2011, while official development assistance (ODA) amounted to approximately $50 billion. FDI, however, has seen rapid growth since the early 2000s, while ODA has been climbing slowly since post-World War II. The study examines the effect that both FDI and ODA have on the United Nations Development Programme\u27s Human Development Index. It finds significant differences between Low-income countries in Africa and Lower-middle, Upper-middle, or High income countries in Africa, as classified by the World Bank. In Low-income countries, ODA has a negative effect on the HDI, while FDI has an ambiguous effect. On the other hand, in Lower-middle, Upper-middle, or High income countries, FDI has a positive and significant impact on the HDI, while ODA\u27s impact is negative. The results indicate that FDI has been more effective in achieving development, while Low-income countries require internal changes to benefit more from foreign capital of any type