FOREIGN DIRECT INVESTMENTS AND URBANIZATION IN SUB-SAHARAN AFRICA: A DYNAMIC PANEL ANALYSIS

The growing rate of urbanization of Sub-Saharan Africa (SSA) in the face of structural and developmental imbalances requires further investigation of the role of foreign direct investment (FDI) as a driver of urban change. This study examines the connection between FDI and urbanization in 37 SSA countries over the years 1996 to 2024, with complementary variables such as access to electricity and human development. The study, using pooled mean group estimation, Driscoll-Kraay regressions, and dynamic generalized method of moments, sensitivity and causality analysis, finds that FDI has a significant positive impact on urbanization through capital accumulation, infrastructure development, and agglomeration effects. These effects are however, heterogeneous, asymmetric and income-group-specific precluding generalization across the board. The urbanization that is brought about by FDI is conditional on the existing socio-economic and institutional environment. To enhance the urbanization dividend of FDI, policymakers should focus on investment in energy infrastructure, especially in low-income countries. In lower-middle-income countries, the focus of human capital development should continue to be central, whereas in higher-income economies, the emphasis should be placed on the quality of FDI and the diversification of the economy to ensure that urbanization is inclusive and sustainable, and that spatial inequalities are avoided.