Abstract
This paper aims at providing empirical analysis of the demand side determinants of the inflow of Foreign DirectInvestment to African nations, with particular emphasis on stock market availability. Due to data heterogeneity,non-continuity and because the Hausman test favors it, cross section fixed effect Least Square Dummy Variable(LSDV) estimation technique is used. Natural resource, labor quality, trade openness, market accession andinfrastructure condition are found to have positive and significant effect. Availability of stock market has theexpected positive but insignificant effect. In search of possible explanation governments’ expenditure andprivate domestic investment are added to the regression equation and are found to have positive effect, ruling outthe possibility of crowding out effect. Stock markets in Africa are not structured in such a way that they cancontribute to attract FDI and hence policy makers should restructure capital markets to get the most out of them.The bottom line is, policy makers of those countries have a lot of demand side instruments under their discretionto attract FDI inflow.
Highlights
IntroductionOne of the bottle necks for their development endeavor is availability of capital
Most African countries are struggling to come out of poverty
The result and interpretations are presents as follows: As has been discussed in the literature review part, Foreign direct investment (FDI) flows to African countries are mainly resource-seeking
Summary
One of the bottle necks for their development endeavor is availability of capital. Multinational enterprises (MNEs) are seen as part of the development solution for several reasons especially for countries where capital is the scarcest resource. The vast majority of studies on the area in the contrary, as we will see soon, have highlighted the importance of FDI for economic growth from different perspectives. They argue, its ability to deal with multi-faceted major obstacles of development, namely, shortages of financial resources, technology and skills, has made it one of the best candidates of development instruments. Many countries and blocks of countries have benefited from this source of finance of development
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