Spillover effects of corruption and democracy on territorial attractiveness of foreign direct investment in sub‐Saharan Africa

Abstract

AbstractThis article aims to analyse the spillover effects of corruption and democracy on foreign direct investment (FDI) attractiveness in sub‐Saharan Africa. To accomplish this, a dynamic spatial Durbin model that allows identification of both the endogenous and contextual effects was estimated. The results of the analysis show the presence of spatial interdependence of FDI attractiveness in sub‐Saharan African countries. The spillover effects transiting through democracy push FDI to agglomerate, while corruption pushes FDI to disperse. Furthermore, we find a strategic complementarity in FDI inflows between the countries in sub‐Saharan Africa, suggesting that an increase in FDI inflows to a host country is likely to stimulate FDI inflows to its neighbours. Therefore, they must coordinate their policies to attract FDI by setting up non‐discriminatory incentives between countries to limit the costs linked to attractiveness policies.