Walsh and jiangyan yu july 2010 abstract this working paper should not be reported as representing the views of the imf. For the past quarter of a century, foreign direct investment fdi flows have. Some country experiences in investment promotion in africa 24 3 investment policies, institutional framework and effects 28 investment incentives 28 the mining sector and foreign direct investment 34 the free zones scheme and fdi flows 40 privatisation and fdi 41 4 empirical specifications and estimation of the econometric approach 45. According to clarke 1980, at independence foreign capital constituted 70 percent of the total capital stock and fdi dominated foreign capital inflows.
This paper examines the determinants of foreign direct investment decisions in relation to location factors in subsaharan africa ssa. Africa has never been a major recipient of fdi flows and so lags behind other regions of the world. Macroeconomic determinants of foreign direct investment. Pdf determinants of foreign direct investment fdi in. Trade openness is an important determinant of foreign direct investment fdi inflows into subsaharan africa ssa. Pdf trends and determinants of foreign direct investment in africa. Gmm is adopted for the analysis of the macroeconomic determinant of foreign direct investment. At the same time, the share of the worldwide fdi flows into ssa has been rather low during the same period. On the determinants of foreign direct investment to. Determinants of foreign direct investment inflows to africa, 19802007.
This working paper should not be reported as representing the views of the imf. Determinants of foreign direct investment inflows to subsaharan africa. Consequently, studies have examined the relationship between fdi inflows and trade openness. Foreign direct investment fdi, can be considered as the key element in africas economic development attempts, through supplementing domestic savings, increasing employment rate, transferring new technologies, and enhancing skills of. Determinants of foreign direct investment in kenya. Based on a panel dataset for 29 african countries over the period 1975 to 1999, the paper identifies the following factors as significant for fdi flows to africa. Foreign direct investment, determinants of fdi, agglomeration forces.
Many developing country citizens feel that the developed world is much better at doing business more efficiently. This study develops a new measure of trade openness to reexamine the relationship between fdi inflows and trade policy openness using principal. South africa foreign direct investment 19852019 data. Determinants of foreign direct investment in africa. Determinants of foreign direct investment of south african. The applied data was utilized as secondary data and it was gathered from the stock exchange of nigeria. Urgaia addis ababa university, addis ababa, ethiopia this study empirically investigates the impact of foreign direct investment fdi on gdp growth in east africa. The research investigates the determinants of foreign direct investment fdi in nigeria over the period for 19802007. International trade and investment empirical studies of bilateral foreign direct investment fdi activity show substantial differences in specifications with little agreement on the set of covariates that are or should be included. The study investigates the main factors considered by south african telecommunications firms when making a decision to undertake foreign direct investment fdi into subsaharan africa ssa. The mining industry has traditionally been a major recipient of foreign direct investment in subsaharan africa and has commonly been an important foreign exchange earner for the region. Fdi foreign direct investments as a determinant for the.
Foreign direct investment in africa although these determinants apply generally to multinational investment, there are features particularly important to africa which should be taken into account. Identifying the key determinants of foreign direct investment is therefore seen as a crucial. Since dollarization in 2009, investment has averaged only 17% of gdp whereas an investment rate of at least 30% of gdp is needed for economic growth wb, 20. Determinant of foreign direct investment inflows in asean. Openness of a country is generally measured as the proportion of. Foreign direct investment has often been viewed as the important component of economic growth within developing countries including south africa, particularly within popular opinion, led in part by the media. Csae, university of oxfordcrefsa, london school of. Foreign direct investment fdi is an integral part of an open and effective international economic system and a major catalyst to development. These are the two least recipient regions of global fdi. The determinants of foreign direct investmentempirical. The determinants and impacts of foreign direct investment. Determinants of foreign direct investment in africa steve onyeiwu. Determinants of foreign direct investment in africa a panel data analysis. It plays the critical roles of filling the development, foreign exchange.
Yet, the benefits of fdi do not accrue automatically and evenly across countries, sectors and local communities. Obiora university of ibadan, may 1, 2006 abstract although the theory of diminishing returns to. The research was directed using 3 research questions while the expo facto approach was utilized. Cochrane ocutt method of regression was utilized in the study. Determinants of foreign direct investment inflows to africa. Trends and determinants of foreign direct investment in africa. Remittances are kenyas single largest source of foreign exchange. Determinants of foreign direct investment inflows to sub. It is dependent on foreign direct investment f di for capital and employment. Chan and gemayel 2004 find that the degree of instability associated with investment risk is a much more critical determinant of foreign investment in the middle east and north africa region countries than it is for developing countries. The determinants of foreign direct investment in sub. A sectoral and institutional approach prepared by james p.
Determinants of foreign direct investment in developing countries. The determinant of foreign direct investment in nigeria includes abstract and chapter one, complete project material available the determinant of foreign direct investment in nigeria abstract the research investigates the determinants of foreign direct investment fdi in nigeria over the period for 19802007. A comparative analysis it is widely recognized that foreign direct investment fdi produces economic benefits to the recipient countries by providing capital, foreign exchange, technology and by enhancing. Despite economic and institutional reform in africa during the past decade, the flow of foreign direct investment fdi to the region continues to be disappointing and uneven. Determinants of foreign direct investment inflows to africa, 19802007 john c. On an annual average basis, the regions share of global fdi inflows was 1. Determinants of foreign direct investment and economic growth in the west african monetary zone. Previous year fdi is viewed as a stimulus to mnes about the. Foreign direct investment in south africa increased by 10528 zar billion in the fourth quarter of 2019. Fdi nourishes recipient countries with the capital inflows, technological knowhow, human capital development and managerial expertise required for sustainable economic development. This encompasses the reasons for investing, the methods of entry into the identified market and the factors influencing their decision.
This further to investigate how ssa countries compare in their fdi determinants with other countries from the middle east and north africa mena. The purpose of the contemporary research was the examination of macroeconomic determinants of foreign direct investment inflows into postconflict sierra leone for the period, 20022015, and whether the determinants have a longrun and shortrun association with fdi. Determinants of foreign direct investment economy watch. Therefore, it is imperative to study the determinants that attract foreign direct investment fdi. In 20, the average share of manufacturing value added in gdp in subsaharan africa was 11 percent, almost unchanged from the 1990s. Foreign direct investment fdi is an important topic for developing nations as it brings with it economic development, access to managerial skills, financial resources, marketing expertise, and leads to increased employment. The determinants of foreign direct investment oecd working papers on international investment selected studies on international investment and investment policy prepared for. Foreign direct investment fdi, as a key element of the globalization and of the world economy, is a driver of employment, technological progress, productivity improvements, and ultimately economic growth. Determinants of foreign direct investment and economic. The impact of foreign direct investment on gdp growth in east africa worku r. June 20, 2011 abstract the study investigates the main factors considered by south african telecommunications. Kenya is an economic leader in east and central africa. Foreign direct investment in south africa averaged 5844. The study employs annual panel data, obtained from the united nations aggregate database for the selected.
Mzumbe university abstract this study provides panel data evidence on the determinants of foreign direct investment fdi for a sample of45 african countries over the period 1980 to 2009. Determinants of foreign direct investment in africa global journals. Pdf africa has never been a major recipient of fdi flows and so lags behind other regions of the world. The determinants of foreign direct investment in the.
Macroeconomic determinant of foreign direct investment in. Foreign direct investment is believed to make significant contributions to growth and economic development of host recipient countries. The views expressed in this working paper are those of the authors and do not necessarily represent those of the imf or imf policy. Determinants of foreign direct investment in developing. Use the free adobe acrobat reader to view this pdf file. C52,f21,f23 abstract empirical studies of bilateral foreign direct investment fdi activity show substantial differences in specifications with little agreement on the set of covariates that are or should be included. Determinants of foreign direct investment of south african telecommunications firms into subsaharan africa john m. The main aim of the study was to examine the determinants of foreign direct investment in subsaharan africa using panel data regression models. The indicators which have been found most frequently to be correlated with increased fdi in africa in crosscountry. An error correction model analysis of the determinant of foreign direct investment. Principal components factor analysis reveals that foreign firms are primarily concerned with political economy in ssa that ensures a sound investment climate and transparent legal framework. In this study we use the fixed and random effects models to explore whether the stylized determinants of fdi affect fdi flows to africa in conventional ways. The installation of a new industry in a foreign country adds to this latter. The bpo revolution, as well as the boom of the information technology companies in countries like india has been a proof of the fact that inexpensive labor force has played an important part in attracting overseas direct investment.
Fdi and trade policy openness in subsaharan africa. The results indicate that the factors that drive fdi to developing countries have a different impact on fdi to ssa. Foreign direct investment inflow determinants have become an important topic not only for policy makers and the government but also for academic researchers and this has arisen due to the failure performance of the previous policies which have been implemented to attract more foreign direct investment in the country. Determinant of foreign direct investment inflows in asean countries foreign direct investment fdi believed to be one of the instruments to reduce gap between the rich and the poor countries has considered asian countries destination, including asean region. Determinants of foreign direct investment inflow in tanzania.
Acknowledging the macro and microeconomic importance of foreign direct investment fdi, this paper aims at examining the determinants, in particular how the agglomeration forces determine the inward fdi in africa. Inexpensive labor force is also an important determinant of attracting foreign direct investment. The first and third of these objectives, for good policy and for good understanding of. Most studies on fdi in africa focus on macro determinants of fdi using quantitative empirical data only see. The findings indicate that exchange rate economic factor and political instability are the crucial determinants of fdi in nigeria. National policies and the international investment architecture. The determinants of foreign direct investment in subsaharan africa. Determinants of foreign direct investment in africa request pdf.
Anyanwu is a lead research economist, development research department, african development bank j. The views expressed in this working paper are those of the authors and do not necessarily represent. Table 12 presents estimated functions explaining fdi inflow to all of the sample developing countries. The paper differs from current studies in the following areas. Pdf trends and determinants of foreign direct investment. Determinants of foreign direct investment in developing countries asarc wp 2010 23. This paper has analyzed the determinants of foreign direct investment fdi to developing countries and examined why subsaharan africa ssa has been relatively unsuccessful in attracting fdi despite policy reform.
The determinants of foreign direct investment in africa springerlink. This type of investment occurs when a firm invests to produce a product. This paper analyzes factors that drive foreign direct investment fdi in africa. To do so, for the first time in the literature, the paper uses 5year panel data and the systemgmm technique over. Determinants of fdi in africa lund university publications. Determinants of foreign direct investment in central and southeastern europe. But, in the case of the sinoafrica relationships, there has been found no significant study that. Lecturer in the school of economics, risk management and international trade, at the northwest university, potchefstroom, south africa. Foreign direct investment, factors driving fdi, african countries.