Foreign Direct Investment and Uncertainty: Evidence from Sub-saharan Africa
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Date
2021-06
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A.A.U
Abstract
This paper examines how macroeconomic, political, and property rights uncertainties in affecting FDI inflows into sub-Saharan Africa (SSA). The study applies both fixed effect and Arellano-Bond GMM dynamic panel data models for a sample of 26 sub-Saharan Africa countries over the period from 2000 to 2018. The study conducts model diagnostic and stationarity tests to ensure that estimation results are reliable. The findings of the study show that macroeconomic uncertainty as proxied by inflation and exchange rates are negatively related to the inflows of FDI to SSA. Our results also show that property rights uncertainty as proxied by rule of law has a positive effect on FDI inflows while, investment profile has negative effect on FDI inflows to SSA. Similarly, the overall measure of political uncertainty is negatively associated with FDI inflows to SSA. However, internal and external conflict, corruption, and bureaucratic quality have no significant effect on FDI inflows to SSA. Other variables included in the model, such as trade openness, rate of return on capital, and infrastructure, have a positive impact on FDI inflows. The policy implications of the study are that governments in SSA could attract more FDI by minimizing political risks, improving property rights enforcement, and managing key macroeconomic variables like inflation and exchange rate.
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FDI, Macroeconomic, political and property right Uncertainties