Determinants of Foreign Direct Investment Flows into Sudan

Abstract

This paper aims at investigating the short and long run determinants of Foreign Direct Investment (FDI) flow into Sudan, using cointegration and V ecto r Error C orrection Model (VECM). The long - run analysis indicates that FDI flows are positive ly influenced by market size, trade openness, human capital and in frastructure. On the other hand, political instability discourages the flow of FDI. Similar to the long - run analysis , the results of VECM confirm the positive effect of trade openness , human capital and infrastructure in attracting FDI . Unlike the long - run results, the analysis of short - run reveals that FDI flows are negatively influenced by exchange rate and inflation. The results of short - run analysis also show that oil has positive impact on FDI , implying that the advent of oil was an important factor en couraged the substantial flow of FDI in the last decade . Moreover , the error term coefficient is found to be negative and significant, supporting the long - run analysis. Based on these findings, the paper concludes with some policy recommendatio ns regarding the factors that facilitating the flow of FDI into Sudan.