TRADE LIBERALIZATION AND FOREIGN INVESTMENT IN AFRICA — A COINTEGRATION ANALYSIS

Abstract

This paper investigates the impact of trade openness on FDI inflows into Congo, Malawi and Swaziland. The paper identifies cointegrating relationships between trade openness and FDI inflows, amongst other determinants, for the three African economies. The Johansen cointegration test indicates a significantly positive impact of trade openness on FDI inflows into Congo and Swaziland. The impact is, however, significantly negative for Malawi. Granger causality test indicates lack of any causal effect between trade openness and FDI inflows. For all three African economies, greater participation in international trade when complemented with government expenditures and domestic investment will expectedly increase FDI inflows.