Abstract
Previous studies on the determinants of foreign direct investment (FDI) have predominantly focused on developed and emerging economies. However, there seem to be few studies concentrating on a comparative analysis of vast African and Asian countries. This paper analysed drivers of foreign direct investments (FDI) to Asian and African economies using a panel dataset from 1980 to 2013.This study used Granger causality test, under vector error correction modelling (VECM) to test for causality among the variables. While the drivers of FDI inflows were measured using five dimensions as proposed by Anyanwu; the dependent variable, FDI inflows, was proxied by the ratio of FDI flows to gross domestic product (GDP). Findings revealed that variables manifesting the determinants of FDI inflows positively affected FDI into these continents. Specifically, factors such as trade openness, macroeconomic condition, infrastructural development, and monetary union have positive and significant effect on FDI to Asian economies. No significant relationship was found between FDI inflows and market size to the Asian continent during the study period. On the other hand, trade openness, macroeconomic condition, market size and infrastructural development have positive and significant effects on FDI inflows to African economies although there was no significant relationship between FDI inflows and monetary union to the African continent during the study period. In fact, there were bi-directional relationships between FDI inflows and some of the determinants in both continents. Theoretically, this model provides predictive implications on improved FDI inflows, given the activities of critical variables manifesting as determinants of FDI inflows.
Highlights
In the past few decades, globalisation has played a significant role in developing international trade and finance, and has facilitated the acceptance and integration of a number of the world’s developing and emerging nations into the global economy (Hailu, 2010; Kimura and Todo, 2010)
The study found a bidirectional causal relationship between FDII and TOP, RGDP and MKTS in Africa during the study period. This implied that, while trade openness, macroeconomic condition and market size positively contributed to foreign direct investment (FDI) inflows to Africa, improved FDI inflow positively contributed toward improvements in trade openness, real gross domestic product (GDP) growth and population growth during the study period
Unlike earlier studies based on developed and emerging economies, this paper analysed the determinants of foreign direct investments (FDI) inflow to Asian and African economies using a panel dataset from 1980 to 2013
Summary
In the past few decades, globalisation has played a significant role in developing international trade and finance, and has facilitated the acceptance and integration of a number of the world’s developing and emerging nations into the global economy (Hailu, 2010; Kimura and Todo, 2010). One of the cornerstones upon which globalisation has grown is foreign direct investment (FDI); flowing predominantly from high income western nations to these emerging economies (Pantelidis, Kyrkilis, and Nikolopoulos, 2012; Usman and Ibrahim, 2012; Anyanwu and Yameogo, 2015). FDI has evolved into a major source of development finance, contributing to the economic growth of many Asian and African economies (UNCTAD, 2015, 2013). Contrary to the earlier description of Africa as a ‘forgotten continent’, the rate of foreign direct investment (FDI) inflow to Africa has accelerated in the last two decades (Aregbesola, 2014; UNCTAD, 2013; Anyanwu, 2012). Global FDI has made rapid increases in the past two decades, the growth in Africa has been most impressive. A gradual recovery ensued from 2011 and FDI flows to Africa grew by 3.6% in 2013 to reach US$57 billion from US$55 billion in 2012, representing 3.9% of the global total stock (UNCTAD, 2015; UNCTAD, 2014; Anyanwu, 2012)
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