Determinants of Foreign Direct Investment in Sub-Saharan African Countries

Abstract

The fundamental problems associated with the Foreign Direct Investment (FDI) in Sub-Saharan African Countries are apparent since the investment is highly influenced by macroeconomic shocks that have severely affected the region's FDI inflow. This paper's prior objective is to investigate the determinants of FDI in some selected emerging sub-Saharan African countries from 2000 to 2017. The panel unit root tests, panel cointegration and fully modified ordinary least square (FMOLS) were employed in analyzing the data. The Panel Unit Root Tests show that the variables were stationary at first difference. The panel cointegration test reveals the presence of a long-run relationship among the variables under study. The results from Modified Ordinary Least Squares (FMOLS) indicate that financial development (FD) and trade openness (TO) have positive effects in determining FDI. In contrast, corruption (COR) has a negative effect in determining FDI in the region. The study recommends that sound financial Development and trade policies should be implemented in the region to have more FDI inflow. The level of corruption should be minimized through various measures to attract foreign investors to the host countries under study.