Abstract
Over the past decade, Lesotho has recorded a substantial increase in levels of foreign direct investment (FDI) inflow, part of it prompted by trade privileges. Building on the extant literature, this study provides an empirical analysis of determinants of FDI in Lesotho. The study looks at how macroeconomic stability, regulatory frameworks, political stability and market size affect FDI. The evidence from this study shows that some of the foreign enterprises in Lesotho are there to serve a bigger South African market. Also, the country has benefited from a more export-oriented investment promotion strategy. Critical issues however remain that must be addressed if the country is to attract more FDI and retain existing investors .These issues pertain to bureaucratic red-tape, corruption and political instability.
Highlights
The evolution of the international capitalist economy and the growth of multinational corporations have been closely linked to patterns of foreign direct investment (FDI) in Africa. Widstrand and Amin (1975) state that FDI represents a central part of the international political economy
This paper extends the existing empirical literature on the determinants of FDI in Lesotho by employing a regression analysis that takes into consideration the extent of export orientation in the country, the macroeconomic stability and political stability, and how these factors affect FDI
3.2 Determinants and constraints n the study conducted by Basu and Sinivasan (2002) on FDI in Southern Africa, FDI in Lesotho is found to be driven by “specific” location advantages, which relate to the opportunity to serve the South African market
Summary
The evolution of the international capitalist economy and the growth of multinational corporations have been closely linked to patterns of foreign direct investment (FDI) in Africa. Widstrand and Amin (1975) state that FDI represents a central part of the international political economy. Under the current phase of AGOA, Lesotho and other beneficiaries can export to the European Union (EU) and the United States duty free. The Cotonou Agreement under which the EU offers duty-free access to most products made in Lesotho In addition to these factors, through privatisation of state-owned enterprises, the country has offered another incentive for FDI, since privatisation signalled the government’s commitment to economic reform. This paper extends the existing empirical literature on the determinants of FDI in Lesotho by employing a regression analysis that takes into consideration the extent of export orientation in the country, the macroeconomic stability and political stability, and how these factors affect FDI. GDP (M billion) Real GDP growth (per cent) CPI (average per cent) Population (million) Exports (US$ million) Imports (US$ million) Current account balance (US$ million) Nominal exchange rate (average) M:US$ Per capita consumption (M)
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