REGIONAL GROWTH HETEROGENEITY: A COMPARATIVE ANALYSIS OF FDI, INSTITUTIONS, UNEMPLOYMENT AND HUMAN CAPITAL IN AFRICA AND ASIA

Abstract

This study has offered an extensive comparative beyond the mean analysis of the growth effects of foreign direct investment, institutional quality, human capital development, and unemployment in Africa and Asia. Incorporating recent data and employing a quite robust dual-methodological framework of Two-Step, GMM and Quantile Analysis, the research has examined both the average impacts and the deeply non-linear threshold effects along growth paths. The results obtained from GMM suggest that FDI is a natural growth driver across the continent. Nonetheless, the much higher impact of 0.289 observed in Asia compared to that in Africa points to the sharp capital market absorption contrast between the two regions. The analysis shows that the two regions' approaches to converting foreign capital into economic growth are fundamentally different. FDI is a consistent growth engine in Asia; even the slowest-developing Asia country exhibits the required absorptive capacity to effectively turn FDI into growth. Africa, experiences an acute threshold effect that is concentrated at the median quantile (Q0.50). Below the threshold (Q0.25), systemic deficiencies in infrastructure and skilled human resources hinder the internalization of foreign capital, so FDI inflows fail to produce appreciable growth. Only after a mid-tier momentum is reached, which is estimated to be a GDP growth rate of 3.8% to 4.2% (based on 2024 averages), does FDI start to accelerate growth in Africa. An interesting divergence is witnessed in the institutional scenario where Asian institutions effectively drive growth; while African institutions are more like constraints to growth. Human capital has been discovered as a critical growth driver to both regions, with results showing more pronounced returns in higher growth quantiles in Africa imply more significance towards the need for skilled labor. The results revealed unemployment and population growth to be major growth inhibitors, whereby the latter poses a potential population trap risk in particular within Africa. A Wald test has emphasized that growth drivers differ widely across Africa, thus necessitating quantile-specific policy interventions rather than the more homogenous regional strategies suitable for Asia. For Africa to internalize the sort of structural stability realized in Asia, it has to prioritize institutional reforms that are needed to ease administrative complexities and promote an advantageous environment capable of crossing the FDI-growth threshold. JEL Classification: F21, O43, O47, J24, E24, C23.