Foreign Direct Investment In Africa Research Articles

How would legal systems affect US and Chinese foreign direct investment in Africa? An exploration of the roles of origins, customary law, and legal integration

How would legal systems affect US and Chinese foreign direct investment in Africa? An exploration of the roles of origins, customary law, and legal integration

Paving Their Own Road? Local Chinese and World Bank Aid and Foreign Direct Investment in Africa

Abstract China’s emergence as a major donor and economic partner to sub-Saharan Africa has prompted questions if the aims and impacts of China’s efforts in the region are driven by self-serving commercial motives. While there are strong reasons to think that the foreign aid may make a location more attractive to investment, generally, by improving the infrastructural, institutional, or human capital environment and/or by serving as a signal of a location’s risk, there is also reason to suspect that Chinese aid may be “paving the way” for investment by Chinese firms. To investigate, this paper uses spatial and temporal variations in localized, geo-referenced data to find a strong overall support that local aid boosts local foreign direct investment (FDI). However, we also find some evidence that Chinese aid boosts its own FDI compared to FDI from third-party countries; but this differential effect is also visible with the Chinese FDI’s response to the World Bank aid as well as in the relationship between both aid and FDI from the USA, suggesting that the Chinese FDI may simply be following any aid and that the relationship between its aid and FDI is not exceptional among bilateral donors.

Trends and Patterns of Korean Foreign Direct Investment in Africa

Trends and Patterns of Korean Foreign Direct Investment in Africa

A Comparative Analysis of the Determinants of Foreign Direct Investment: The Case of Top Ten Recipients of Foreign Direct Investment in Africa

Through mechanisms including knowledge transfer and productivity spillovers, foreign direct investment (FDI) is viewed as a critical driver of growth in developing economies. However, the majority of African nations require capital inflows, particularly foreign direct investment (FDI), as a result of insufficient capital accumulation. The capacity of African governments to deliver top-notch infrastructure and social services has been diminished as a result. However, there has not been any independent research on how FDI inflows have affected Africa’s top 10 nations between 1970 and 2021. Most studies on the subject overlooked the impact of institutional quality on FDI inflows and omitted pertinent indicators of infrastructure development. The purpose of this article is to present a comparative analysis of the factors influencing the top ten beneficiaries of FDI in Africa. The ARDL bound test was employed to confirm the co-integration of the variables over the long term. The major goal is to confirm the relationship between the short- and long-term determinants of foreign direct investment in the top ten African recipients. This estimation was performed based on the unique characteristics of each country to make comparisons and inferences easier. The results of the limit test demonstrated the existence of a long-term connection between the examined determinants. The study found that infrastructure gaps, poor domestic savings, and price inflation were some of the mitigating factors preventing FDI from entering these countries. Additionally, the study found poor governance, which may impede the growth of effective institutions and capital inflows. It is crucial that these nations undertake both fiscal and monetary policies in order to address these issues, draw in private investments that allow for significant economic activity, and boost their economies’ prosperity.

Constitutional instability and foreign direct investment in Africa

AbstractThis paper assesses the impact of constitutional changes on foreign direct investment (FDI) in 49 African countries during the period 1980–2020. The paper uses a dummy variable related to the year of the constitutional change and the number of changes during the study period to capture the frequency of constitutional changes. The results reveal that an increase in the frequency of constitutional changes negatively affects FDI. The negative relationship between constitutional change and FDI is consistent across different measures of constitutional change and FDI and is robust to alternative empirical approaches. These results suggest that frequent constitutional changes may create uncertainty and instability in the investment climate, which may discourage foreign investors from investing in these African countries. The study provides evidence for policymakers that a stable constitutional framework may attract FDI in African countries.

THE EFFECT OF SOCIAL PROGRESS ON FOREIGN DIRECT INVESTMENTS: A DYNAMIC PANEL DATA ANALYSIS FOR AFRICAN COUNTRIES

A strand in the empirical literature on development economics investigates the dependence of foreign direct investments on recipient countries' economic, institutional and structural characteristics. This paper builds upon this literature by examining the role of a country's social progress as a pull factor for inward foreign investments.  It applies the dynamic panel data methodology to an unbalanced panel dataset from African countries for the 2011-2019 period. The findings suggest that social progress is a significant determinant of foreign direct investments in Africa, supporting a positive social progress-foreign direct investments nexus. For the dimensions of social progress, while access to basic needs and foundations of well-being are important factors, opportunity exhibits superior influence on foreign direct investments. Findings provide evidence for a policy that recognises the social progress in shaping a host country’s attractiveness to foreign investments.

Analysis of India’s Non-State-Owned Enterprise Investments in Africa: An Empirical Approach

This paper focuses on Indian foreign direct investment (FDI) flows to Africa for the period 2008 to 2018, amidst increasing state efforts to improve Indo-  African economic ties. This study pioneers the segregation of investments led by state-owned enterprises (SOEs) from non-SOEs in an empirical analysis.  The motivation is rooted in the scarcity of empirical evidence of Indian FDI in Africa, particularly by non-SOEs. The random effects model was applied on  the panel data for 2008-18 to highlight the significant causative effect of country alliances, gross domestic product (GDP) and net overseas development  assistance of host countries in attracting greater FDI from Indian enterprises. The effect of corruption levels remains less clear in a statistical sense.  These results could inform the political and economic policies of African host countries that seek financial and technical support from India.

A Multi-Sectoral Analysis of Effects of Foreign Direct Investment on Nigeria’s Output Growth

This research work examined the Multi-Sectoral Analysis of effects of Foreign Direct Investment on Nigeria’s Output Growth ranging from 1990-2020, covering a period of 30 years. Foreign Direct Investment (FDI) is undoubtedly a key source of external capital to many emerging economies. Nigeria is one of the renowned destinations for FDI in Africa. Inflows of FDI in Nigeria are not significant when compared to some other developing countries. This research explores issues pertaining to sectoral allocation of FDI in the major sectors of the Nigerian economy. Technically, it focused on the effect of FDI on Nigeria’s sectoral output growth. Foreign Direct Investment Proxied as FDI is the explanatory variable while Interest Rate proxied as INTR and Exchange Rate as EXR are the control variables while Mining & Quarrying (MQGDP), Manufacturing & Processing (MPGDP), Agricultural Sector (AGGDP), Information & Communication (ICGDP) Output are the dependent variables. The central objective of this research work is to determine the effect of FDI inflows, on Mining & Quarrying (MQGDP), Manufacturing & Processing (MPGDP), Agricultural Sector (AGGDP), Information& Communication (ICGDP) Output and also Interest Rate and Exchange Rate as control Variables. It employed the use of secondary and time series data using statistical tool such as Auto Regressive Distributive Lag (ARDL), Augmented Dickey Fuller unit root to test for the stationarity of the Data, Johanson Co-integration to test for long-run equilibrium relationship that exist among the variables under study. The p.value of FDI on MQGDP, MPGDP, AGGDP, ICGDP are 0.3767, 0.5846, 0.3155, 0.8498and effect of INTR on MQGDP, MPGDP, AGGDP, ICGDP are 0.8015, 0.7097, 0.9200, 0.8426 and effect of EXR on MQGDP, MPGDP, AGGDP, ICGDP are 0.4172, 0.9330, 0.5513, 0.1755 respectively showing that none is significant. The result shows that FDI, INTR &EXR impacted positively on the output growth of MQGDP, AGGDP & ICGDP while, only FDI impacted positively on MPGDP with INTR & EXR exerting negative effect on it. Based on the findings, the study recommends amongst others that government should encourage the inflow of more FDI into the various sectors by creating an enabling environment and formulating strategic socio-economic policies that will enhance the ease of doing business in Nigeria and boost investor’s confidence.

The effect of population health on the inflows of foreign direct investment in Africa

Although a lot of studies exist on the drivers of Foreign Direct Investment (FDI) inflows, very little attention has been paid to the effect of population health, to the extent that, some countries may be willing to compromise their health and safety standards in order to attract FDI inflows. In this study, we provide empirical evidence of the effect of population health on net FDI inflows in Africa. The study employs data from 1997 to 2017 on a sample of 35 African countries. Life expectancy and death rate are used to proxy population health whiles the Instrumental Variable Fixed Effects (IVFE) and the system Generalised Method of Moments (GMM) regressions are used as the baseline and robustness empirical estimation techniques, respectively. The study finds life expectancy and death rate to have positive and negative significant effects on net FDI inflows respectively, irrespective of the estimation technique used. Our findings imply that, instead of lowering health and safety standards, enhancing population health (via for instance, improving access to quality healthcare, improved water and sanitation as well as vaccination against diseases among others) should rather be used as a strategy towards attaining higher net FDI inflows, especially into Africa.

Rethinking the Role of Foreign Direct Investment in Africa: A Factor Income Distribution Based Analysis

Rethinking the Role of Foreign Direct Investment in Africa: A Factor Income Distribution Based Analysis

Bayesian model averaging approach of the determinants of foreign direct investment in Africa

The possibility of misinforming policy direction is undoubtedly high when factors determining foreign direct investment (FDI) are haphazardly selected owing to the diverse nature of the underlying FDI theories, thus leading to model uncertainty. To resolve the econometric and policy concerns, this study re-investigates the determinants of FDI for 53 African economies for which comprehensive data are available using the Bayesian Model Averaging (BMA) technique over the period, 1984–2018. Interestingly, unlike the previously conducted studies on FDI determinants, variables such as gross fixed capital formation, trade openness, exchange rate, secondary school education, democratic regime type and mobile subscriptions per 100 people take preeminent positions over other explanatory variables for the continent. However, government consumption expenditure, inflation, GDP per capita, capital openness and credits to the private sectors constitute the major deterring factors of FDI into the continent. These variables altogether remain the substantive predictors of FDI into African continent out of the 23 explanatory variables used. Similarly, differences are observed in the determinants of FDI across the regions of the continent. Thus, assuming the general policy framework to region specific concerns may not be efficient policy menu to attracting foreign capital flows. In light of the preceding, understanding the salient African-wide determinants as well as each region's idiosyncratic details regarding the determinants hold a promising path to tread in attracting foreign direct investment.

Foreign Direct Investments in Africa: Are Chinese investors different?

In light of the upsurge in Chinese investments in Africa since Deng’s “Go Global” policy, we study whether the location choices of greenfield investors in Africa differ between Chinese and non-Chinese firms. We focus on risk- and information-related factors, i.e., investment protection provided by investment agreements and country-of-origin, industry, and internal agglomeration. We argue that Chinese firms enjoy ownership advantages that reduce their concern for risk. Our results show that Chinese firms are less sensitive to risk-mitigating factors compared to firms from advanced and other emerging economies. A lower reliance on internal agglomeration emerges as their distinctive trait in internationalization. We attribute this result to the systemic engagement of the Chinese government, which goes beyond state ownership and reduces the “liability of foreignness”. Chinese firms also appear more market-seeking and manufacturing-oriented, aggressively pursuing knowledge spillovers. Contrary to common perceptions, they do not seem distinctively resource-seeking or to pursue unstable countries.

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

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.

The end of tax incentives in mining? Tax policy and mining foreign direct investment in Africa

AbstractAfrican countries generally cut corporate income tax (CIT) rates in the hopes of attracting foreign direct investment (FDI), whereas the effectiveness of tax rate reductions in attracting extractive industries FDI is controversial. This paper estimates the impact of the statutory CIT rate, as applied to mining companies, on FDI inflows to the gold and silver sectors of African economies. The estimation results indicate that the impact of the mining CIT rate on the host country's gold and silver FDI inflows is negative, but not statistically significant, at the conventional levels of significance. These results suggest that cuts in the CIT rate applied to mining companies will not necessarily attract FDI to gold and silver projects. Moreover, we find a strategic complementarity in gold and silver FDI inflows between countries, suggesting that an increase in the host country's gold and silver FDI inflows may stimulate FDI to gold and silver projects in neighbouring countries. Furthermore, the results show that infrastructure, government stability and gold and silver reserves positively affect gold and silver FDI inflows. The main findings of the paper suggest that, instead of granting corporate tax incentives, governments may consider improving the quality of socio‐economic infrastructure, the availability of geological information and promoting political and economic stability for attracting mining investments.

Forgotten territories: the uneven geography of FDI in Africa and the case studies of Burundi, Central African Republic, Comoros, the Gambia, Guinea-Bissau and São Tomé and Príncipe

ABSTRACT Considering the uneven geography of foreign direct investment in Africa, this article examines political, demographic and infrastructural factors that have led six countries – Burundi, Central African Republic, Comoros, the Gambia, Guinea Bissau and São Tomé and Príncipe – to be the least attractive territories to the external capital. This paper investigates the extent to which political stability, qualification of labor, potential consumer market, regional integration, and infrastructure play a central role in attracting investments. It also debates Geography’s role in investigating African countries’ particularities to avoid common generalizations, which are still disseminated by Afro-Optimism and Afro-Pessimist perspectives.

Does Chinese FDI in Africa inspire support for a china model of development?

Chinese Foreign Direct Investment (FDI) to Africa is quickly becoming a centerpiece of China’s approach to promoting development overseas. To this point, however, little is known about the extent to which those investment projects inspire popular support for a China model of development in Africa, or whether Chinese FDI invites skepticism and concern among community members in the region. In this study, we investigate the effects of proximity to Chinese FDI on local perceptions of China’s approach to development in Africa. We geolocate 200 Chinese investment projects, and we spatially connect those data to responses from over 35,000 georeferenced survey respondents across 21 countries. By comparing responses from those living near operational Chinese FDI projects to responses from those living near eventual locations of Chinese investment but where no project yet exists at the time of the survey, we determine the proximity effects of Chinese FDI on views of the China model of development while accounting for the potential nonrandom location of those investment projects. The findings indicate that, on average, living near Chinese FDI projects reduces support for a China model of development. Furthermore, specific types of FDI projects evoke distinct evaluations of China’s presence. Specifically, respondents living near manufacturing projects view infrastructure development as a positive contribution from China, whereas those living near resource-related projects express concerns about Chinese land grabs and job threats. Those living near service projects hold more mixed views. The results suggest that people living in close proximity to Chinese FDI projects in Africa are swayed less by global development narratives than by how those projects shape their everyday lives and experiences.

Exchange rate uncertainty and foreign direct investment in Africa: Does financial development matter?

AbstractThe orthodox view is that uncertainty deters investments and, by extension, private capital inflows. Paying specific attention to the volatility of the domestic exchange rate, foreign direct investment (FDI), and financial development indicators, this study investigates the impact of exchange rate uncertainty on FDI and whether financial development matters in such association. We establish our empirical relationship with a system general methods of moments (GMM) two‐step robust estimator with orthogonal deviations. We found evidence supporting a nonlinear U‐shaped relationship between uncertainty and FDI and that the impact of uncertainty on FDI depends on varying levels of uncertainty. We also document that uncertainty deters FDI flows and that countries with a well‐functioning financial development can transform the adverse impact of volatility on FDI. However, curbing the adverse effect depends on the specific indicator and the threshold value of financial development (financial institutions or financial markets).

Two decades of foreign direct investment in Africa: a systematic literature review, integrative framework, and agenda for future research

Two decades of foreign direct investment in Africa: a systematic literature review, integrative framework, and agenda for future research

Determinants of foreign direct investment in renewable electricity industry in Africa

ABSTRACT Using a novel dataset of foreign direct investment (FDI) corporations in the renewable electricity industry (REI), coupled with a large range of employed variables, this paper empirically examines FDI determinants in the REI in Africa between 2003 and 2019. The electricity insecurity issues worsen daily, aggravating all facets of African life. A range of promising and informative results were found using the FDI panel gravity fixed effects Poisson pseudo-maximum likelihood model. Interestingly, we reveal the uselessness of fossil fuel subsidy changes in stimulating green FDI in Africa. However, a 1% growth in Africa’s gross domestic product expands FDI by almost 1.5%. Similarly, one additional point in the corruption index reduces FDI by about 1.2%. Furthermore, increasing the number of educated African children and raising renewable energy awareness contributes constructively to the REI and sustainable energy development. To mitigate the energy issues, policymakers should elevate clean power consciousness among Africans and enhance sustainable energy support and policies.

Determinants of Chinese Foreign Direct Investment in Africa

ABSTRACT We investigate the role of institutions in attracting Chinese FDI into Africa. Focusing on market- and resource-seeking motivations, we consider whether the impact of institutions varies by motivation for FDI. Our data relates to 43 African countries over 11 years, and we use the Generalized Method of Moments to show that Chinese MNEs are market-seeking and are attracted by weaker institutions. This negative effect of institutions is especially strong in resource-rich and higher-income countries. Our study also finds that in resource-rich African countries, better infrastructure quality attracts Chinese FDI.