Abstract
AbstractForeign direct investment (FDI) provides many African countries an important source of capital inflow. Despite notable improvements in these capital‐scarce countries' economic, political and social conditions, foreign investors have not considered them viable host locations. Since FDI brings enormous spillovers to its host, some countries have recently institutionalized globalization as the catalyst for reversing the trend. Against this backdrop, we examine the FDI‐globalization nexus across 47 African countries for the 1996–2016 period. Using the augmented mean group estimator, the results suggest that FDI in Africa is indeed globalization‐induced. Moreover, we find this positive nexus to be driven by the economic dimension of globalization. Overall, we demonstrate the potential of globalization in stimulating an FDI boom in Africa.
Highlights
Globalization entails the process of creating network connections among actors at intra- or multicontinental distances, mediated through a variety of flows, including capital, goods, ideas, and people (Clark, 2000)
We find that the coefficient on globalization is positive and significant in columns (1) and (2), suggesting that globalization induces foreign direct investment (FDI) inflows in Africa
Our finding does not utterly debunk these arguments; we provide evidence to suggest that globalization encourages the internationalization of multinational corporations (MNCs)' activities
Summary
Globalization entails the process of creating network connections among actors at intra- or multicontinental distances, mediated through a variety of flows, including capital, goods, ideas, and people (Clark, 2000). Bhagwati (1978) suggests that FDI has mostly benefited highly-globalized countries than their lowly-globalized counterparts. FDI emerges as an outcome of the resource-, market-, efficiency- and strategic assetseeking investment activities of multinational corporations (MNCs).1 Narula and Dunning (2010) identify FDI as the most effective way for MNCs to enter developing countries. They argue that MNCs' activities in these countries stimulate domestic capital accumulation (Cipollina et al, 2012; Thangavelu et al, 2009; Gorg and Greenaway, 2004) and narrows the financing gap in investment that impedes economic growth (UNCTAD, 2013).. They argue that MNCs' activities in these countries stimulate domestic capital accumulation (Cipollina et al, 2012; Thangavelu et al, 2009; Gorg and Greenaway, 2004) and narrows the financing gap in investment that impedes economic growth (UNCTAD, 2013). While FDI flows to developing and transitional countries fell in 2018, developing countries still hosted a record 54% of global FDI inflows (UNCTAD, 2019a)
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