Abstract
Foreign Direct Investment (FDI) is commonly perceived as one of the main drivers of technological progress and socio-economic development. At the same time, FDI is often regarded as an instrument of stabilising authoritarian regimes, which disenfranchise the rights of citizens to increase rents generated by foreign firms. Given that both views are accurate, the improvement of human rights and economic development could constitute two conflicting goals. This particularly applies to Sub-Saharan Africa, where a sizeable number of countries are mired in poverty and governed by authoritarian power structures. In evaluating the importance of these soft factors, we examine two important institutional factors of FDI attraction: We address the question of whether human rights violations deter FDI attraction and explore whether FDI depends on the amount of available socio-economic information about the country to be invested in. For the latter, we use a novel variable, namely the Statistical Capacity Figures of the World Bank, which depicts an indicator of effectiveness of the national statistical systems. In order to analyse the relationship between human rights and FDI, we run a regression model covering 41 Sub-Saharan countries covering the years from 2006 to 2015.
Highlights
Economists typically regard the attraction of foreign companies as an instrument, which generates technological spillovers, raises the development level and integrates emerging markets in the global supply chain (c.f., Smith, 1997; Anyanwu & Erhijakpor, 2004)
For analysing the effect of Statistical Capacity and Human Rights on Foreign Direct Investment (FDI) in Sub-Saharan Africa, we applied a panel data analysis because of the nature of our data which consist of multiple countries over a ten-year time period (Hsiao, 2014; Stock & Watson, 2015) Panel data analysis has several advantages such as a large number of observations
Uncertainties can be caused by political factors such as the occurrence of human rights violations or by the deficits of a nation in providing data about its economic structure
Summary
Economists typically regard the attraction of foreign companies as an instrument, which generates technological spillovers, raises the development level and integrates emerging markets in the global supply chain (c.f., Smith, 1997; Anyanwu & Erhijakpor, 2004). The positive perception of FDI as an instrument for growth has resulted in the liberalisation of foreign trade regimes and regulatory changes in order to attract international investors (c.f., Coorey & Vadlamnati, 2015). Despite its vast landmass, endowment with natural resources, pool of cheap labour and sheer market size, FDI remains underrepresented and oscillates between 1−2% of the global investment stock. Considering the population size of the region, which represents 17% of the world population, which is likely to account for 40% of the global population in the future, and its abundance of natural resources ranging from coal to rare earths, the stark contrast between potential and real FDI is astounding
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