FOREIGN DIRECT INVESTMENT AND ECONOMIC DEVELOPMENT IN SIERRA LEONE: AN EMPIRICAL ASSESSMENT OF ITS ECONOMIC IMPACT FROM 2010 TO 2025
Abstract
Sierra Leone presents one of the starkest disconnections in development economics: a country with abundant mineral wealth that in 2023 ranked 181st out of 193 countries on the UNDP Human Development Index. This article examines the relationship between foreign direct investment (FDI) and economic development in Sierra Leone across the fifteen-year period from 2010 to 2025, a window that encompasses the iron ore boom (2010-2014), the compound Ebola and commodity price crisis (2014-2016), the post-crisis recovery phase (2016-2020), and post-pandemic stabilisation. Using ordinary least squares regression with structural break tests at the identified turning points of 2014 and 2020, and drawing on World Bank World Development Indicators, UNCTAD FDI statistics, IMF country reports, and the World Governance Indicators, the study finds that FDI exerts a statistically significant positive effect on real GDP growth over the full study period, with the coefficient on FDI as a share of GDP estimated at 0.312. This aggregate result, consistent with Bah and Cooper (2022), Kougbaka and Korsu (2025), and Turay et al. (2025), masks substantial sub-period heterogeneity: the FDI-growth coefficient is positive and significant in the boom phase, turns negative and insignificant during the compound crises, and recovers partial significance during the post-crisis and stabilisation periods. Critically, institutional quality consistently moderates the relationship across all sub-periods, a finding aligned with Bah and Cooper (2022). The transmission channel assessment reveals that capital formation is the only channel operating with moderate strength; employment generation, technology transfer, export diversification, fiscal revenue capture, and domestic backward and forward linkages are all weak or absent. These findings carry direct policy implications: Sierra Leone requires a shift from maximum FDI volume attraction to quality-selective investment promotion, enforceable local content requirements, renegotiated fiscal regimes in the extractive sector, and deliberate institutional reform. The study contributes the first fully periodised empirical treatment of the FDI-development relationship in Sierra Leone across the 2010-2025 arc.
JEL: G11, G15, D81 E15
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DOI: http://dx.doi.org/10.46827/ejefr.v10i5.2255
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