Foreign Direct Investment to Africa: Is There a Colonial Legacy?

Abstract

To provide new understanding of the effect of historical ties in the field of international business, through the lens of institutional theory and the concept of the liability of foreignness, we examine how prior colonial relationships influence inward FDI from former colonisers to their former colonies in Africa. With an estimation based on a balanced panel of annual observations from 2001 to 2012, we find that prior colonial ties are positively related to inward FDI from colonisers to former colonies. However, there is substantial heterogeneity in colonial relationships, with the nature of British colonialism more likely to exhibit the colonial relationship in explaining inward FDI. Moreover, there is ambiguity associated with the influence of the time period of colonization and the time period of independence on inward FDI. We report a negative relationship between the period a country was a colony and FDI from the coloniser and a U-shape relationship between the period of independence and FDI from the coloniser. Our findings indicate that the nature and influence of colonial ties on FDI from colonisers are more nuanced and complex than previously considered.