Do Policy and Institutional Variables Play a More Significant Role in Attracting Foreign Direct Investment to Eastern Africa than They Do in Other Regions of Sub-Saharan Africa?

Abstract

The paper aims to assess whether policy and institutional variables are significant factors in attracting foreign direct investment (FDI) to eastern Africa. The assessment is based on the determinants of FDI in a sample of 30 sub-Saharan African (SSA) countries between 2005 and 2016. Employing panel data methodology, I investigate whether policy and institutional variables play a more significant role in attracting FDI to eastern Africa than they do in other SSA countries. The results indicate that these variables are more significant factors for attracting FDI to eastern Africa than they are for the other SSA regions. The paper concludes that eastern Africa’s current FDI promotion policies are working. In particular, ensuring a stable macroeconomic situation and a favorable profit tax rate as well as building good institutions have proven to be good tools for attracting FDI to eastern Africa.