Investment Climate and Foreign Direct Investment in Africa: The Role of Ease of Doing Business

Abstract

This paper explores the relationship between the ease of doing business, as one of the investment climate indicators, and foreign direct investment (FDI) inflows in Africa. It uses instrumental variable estimation and the control function approach to correct for possible endogeneity between FDI and the ease of doing business as well as economic growth. The study uncovers evidence that the ease of doing business plays a positive role in attracting FDI. The findings support African countries’ attempts to invest in improving their business environment to attract favorable FDI.