Abstract
The paper analyses the determinants and the effects of foreign direct investment inflows (FDI) in the Zimbabwe Mining Sector (ZMS) in a specific study for 14 minerals from 2005-14 estimating a random effect model. Mineral specific variables examined include capacity utilisation, volume of manufacturing index, labour cost, sectorial contribution to Gross Domestic Product (GDP), political instability, mineral price and mineral output. FDI inflow in the ZMS can be explained by capacity utilisation, volume of manufacturing index, labour, sectorial contribution to GDP and political instability. No statistical evidence could be established to support mineral price and output as major determinants of FDI in the mining sector. All these variables confirmed with literature except for volume of manufacturing index. As a result, the government is recommended to put in place supportive policies that encourage investments and recapitalization in the mining sector so that local firms can effectively compete at both domestic and international investment markets.
Highlights
Access to foreign capital and investment enables a country to invest in human and physical capital as well as to make full use of opportunities otherwise not available
Comparative results of the three models: the pooled ordinary least squares (OLS) (POLS), random effects model (REM) and the fixed effects model (FEM), show that the Random Effects Model (REM) and POLS report results which are comparably similar in terms of the coefficients and expected signs
Legislators have well vested interest in implementing policies aimed at stabilisation and efficiency in the Mining sector
Summary
Access to foreign capital and investment enables a country to invest in human and physical capital as well as to make full use of opportunities otherwise not available. Its empirical determinants and effects are not very well understood. Foreign direct investment (FDI) is crucial for developing countries because of the long-term finance, technology, technical knowhow, managerial expertise and marketing experience that if offers. It brings to the host country economic development, and leads to increased employment (Kukaj and Ahmet [1]). Chimuka [2], argued that FDI is crucial in the mining sector for carrying out mineral exploration, extraction, processing and marketing because Zimbabwe lacks enough capital and technological resources to finance such capital intensive large-scale projects. As a consequence one needs to understand determinants and effects of FDI
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