Global uncertainty, economic governance institutions and foreign direct investment inflow in Africa

Abstract

Based on the fact that Africa has not fared well in attracting foreign direct investments in the last decade compared to other regions of the world, especially during periods of high uncertainty occasioned by one crisis or the other, this study investigated: the impacts of global uncertainty and economic governance institutions on FDI inflow to Africa; the moderating effect of economic governance institutions on global uncertainty-FDI relationship in Africa; and other significant drivers of FDI inflow to Africa. The study used the system GMM modeling framework and a panel of 46 African economies over the period 2010–2019. The results indicate that global uncertainty has a significant dampening effect on FDI inflow to Africa, and economic governance institutions on the continent amplify this effect rather than mitigate it. The results further indicate that natural resource endowment, market size, and initial FDI inflows are robust drivers of FDI inflows to Africa, while the roles of financial development and trade openness remained muted. Overall, the study concludes that policymakers in Africa should take urgent steps to strengthen the quality of economic governance institutions as a means of mitigating the excruciating effect of global uncertainty on FDI inflows to Africa.