The relationship between FDI, political risk and institutional quality in sub-Saharan Africa (original) (raw)
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Institutional quality, foreign direct investment, and economic development in sub-Saharan Africa
Humanities and Social Sciences Communications
Foreign direct investment (FDI) is regarded as a critical determinant in the concept of development for Africa. However, institutional quality in the recipient countries is considered an essential factor that can be used to drive FDI flows inward. The study aims to establish the effect of institutions’ challenges on the FDI inflow and how it impacts on economic development for host selected countries in sub-Saharan Africa (SSA). The study employed pooled data for 30 SSA countries for the period within the years 2000 and 2018. The analysis method used was the fixed and random effect regression model utilized to estimate the effect of foreign capital on economic development with considerations for the quality of institutions for developing SSA sub-region of Africa. This study reveals that foreign capital inflow is crucial for economic development in the SSA sub-region of Africa. Quality of institutions as determining factors also affected the level of inflow of FDI to the host SSA sub...
The Role of Institutional Quality in FDI Inflows in Sub-Saharan Africa
2011
During the period 2000 to 2008, Africa’s collective GDP grew at an annual rate of 4.9 percent. Even though previous studies argue that strengthened and improved institutional quality is key determinant for attracting foreign direct investment to Africa, we find no evidence to that effect. Using a panel data for 45 Sub-Saharan African countries (SSH), we estimate the role of institutional quality (governance) in attracting FDI inflow during the 1996-2007 period. After controlling for country and time specific effects and the economic environment of the host country, we find no significant evidence of the impact of institutional quality on FDI inflow in our analysis. This finding may suggest that FDI inflow to SSH is potentially motivated by the abundance of raw materials and natural resources than good governance.
Does foreign direct investment promote institutional development in Africa?
International Business Review, 2021
Foreign direct investment (FDI) inflows into Africa have increased since the turn of the millennium, mainly due to FDI growth into African countries by multinational enterprises (MNEs) from developing economies. While African governments view this growth as a positive development for the continent, many governments in the West have raised concerns regarding the institutional impact of investments from developing economies. This paper examines the impact of FDI flows on institutional quality in African countries by distinguishing investments from developed versus developing economies. Previous empirical studies have found a significant relationship between FDI flows and institutional quality in African countries but regard the relationship as MNEs rewarding African countries for adopting institutional reforms. However, little attention has been paid to the reverse causality, i.e. that FDI can cause an institutional change in African countries. Using bilateral greenfield FDI flows bet...
Impact of Institutional and Political Variables On Foreign Direct Investment in Developing Countries
The Park Place Economist, 2017
Literature on foreign direct investment (FDI) has been focusing on its traditional determinants for a long time and lack of attention to institutional and political variables. However, in recent years, the pattern of the world FDI flows is observed to show a shift away from developed countries towards developing countries. Such shift is argued to be the result of the improvement in institutional qualities and political stability in developing countries to make investment climate more appealing to foreign investors. The impact of institutional qualities on FDI flows, however, have not been investigated by many studies in the field of FDI. To address this shortcoming, this research studies the relationship between institutional and political variables on FDI inflows in developing countries. This article is available in The Park Place Economist: http://digitalcommons.iwu.edu/parkplace/vol25/iss1/15 88 The Park Place Economist, Volume XXV Impact of Institutional and Political Variables ...
Institutions and Foreign Direct Investment: Evidence from Sub-Saharan Africa Regions
The paper set out to investigate the nexus between institutional quality and inward FDI and how the presence of liberalization and financial development influence this linkage. We build on Dunning's eclectic paradigm that focuses on locational advantages. A fixed effects approach is employed and the estimation results confirm the crucial role of institutional quality in attracting FDI inflows. However the impact varies with the particular group. In particular, apart from SADC, institutional quality seems to matter significantly in all the other groups especially in EAC and ECOWAS. Additional findings reveal a mixed impact regarding the presence of financial development and liberalization in the institution-FDI nexus: While Trade liberalization policies seem to be at the forefront in ECOWAS and SADC groups, it is credit depth and capital account openness that appear to matter most in EAC. We confirm the resilience of inward FDI during the global crisis and document a positive significant relationship between FDI inflows on the one hand and host market size and infrastructure development on the other. While a one-size-fits-all-policy should be discouraged due to the heterogeneous nature of SSA countries, overall, a comprehensive set of policies designed with caution to improve the institutional quality, the financial system, trade openness and capital account liberalization would be valuable for attracting FDI inflows to SSA.
Journal of Economics and Management, 2024
This study investigated the impact of institutional quality indicators on Chinese FDI flow to selected West Africa countries during the period 2002-2020. The study employed standard OLS and standard date panel techniques to differentiate between efficiency effects of fixed and random effects. The study provided empirical evidence that supports the Dunning eclectic macroeconomic theory of FDI flow. The results of the analysis indicated that control of corruption(CC), political stability and absence of violence (PV), regulatory quality (RQ), rule of law (RL), voice and accountability (VA), market size (rGDP) and exchange rate (EXR) were found to be positively related to Chinese FDI flow to the selected West African countries. The coefficient of rGDP and PV are statistically significant. The study results revealed government effectiveness (GE), trade openness (TOP), debt to GDP ratio (DEBT), and inflation (INF) variables have negative and not statistically significant impacts on Chinese FDI inflows. In light of the findings, higher levels of trade openness and better governance structures are less likely to attract Chinese FDI in the long run. Though, promoting good governance is better to support strong open trade policies which improve investment climate and level of rGDP. Also, the coefficients of INF and DEBT are in line with economic theories. However, INF and DEBT variables cannot significantly explain the variation in Chinese FDI inflows. The results revealed that geographical distance does not encourage the inflows of FDI from China. This study concludes that improvements in the institutional qualities are keys to spurring Chinese FDI inflows.