Abstract
Foreign direct investment (FDI) is regarded as a critical determinant in the concept of development for Africa. However, institutional quality in the recipient countries is considered an essential factor that can be used to drive FDI flows inward. The study aims to establish the effect of institutions’ challenges on the FDI inflow and how it impacts on economic development for host selected countries in sub-Saharan Africa (SSA). The study employed pooled data for 30 SSA countries for the period within the years 2000 and 2018. The analysis method used was the fixed and random effect regression model utilized to estimate the effect of foreign capital on economic development with considerations for the quality of institutions for developing SSA sub-region of Africa. This study reveals that foreign capital inflow is crucial for economic development in the SSA sub-region of Africa. Quality of institutions as determining factors also affected the level of inflow of FDI to the host SSA sub-region, which resulted in the underutilization of domestic resources and hence abnormal development of domestic sector investment. The study recommends that the government of host SSA sub-region needs to consider the degree of institutional quality to encourage further FDI inflows. To afford the maximal benefit of FDI in the development of the host domestic sector and to guard the industry that foreign investment flows into carefully. It is expedient, thereby, that the domestic investment is enhanced to ensure that dependence on foreign capital inflow continues to decline as income increases. Until domestic investments are sufficient to generate advancement in technology and desired economic development for the selected countries, in the SSA sub-region.
Highlights
The Foreign direct investment (FDI)-economic growth relationship raises important institutional issues on the recipient economy (Adegboye et al, 2020c; Ogundipe et al, 2020)
Regions are heading towards the attainment of development economically, and this aims at achieving the United Nation (UN) sustainable development goals (SDGs) no later than 2030 (Ejemeyovwi et al, 2018)
In sub-Saharan African (SSA) countries, the level of human development index (HDI), which can be achieved through the building of a robust institutional framework to attract foreign capital inflow in the quest for the attainment of economic development have scanty input in literature; this forms the motivation for this study
Summary
The FDI-economic growth relationship raises important institutional issues on the recipient economy (Adegboye et al, 2020c; Ogundipe et al, 2020). There has been a shift of emphasis and efforts by successive governments in the region to globally integrate their countries to increase the inflow of capital through FDI in their respective countries. It will help the economic recovery of the continent and keep African countries in good shape to achieve sustainable development goals (SDGs), after previous attempts at millennium development goals (MDGs). Recent evidence shows that more companies are growing via FDI in several industries in African countries It is evident from the relatively increased level of FDIs seen in SSA countries over the preceding years. Foreign investments by multinational companies in most SSA economies usually rely on natural resources of host countries, agriculture, manufacturing, and oil production (Adegboye et al, 2020b)
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