Foreign Direct Investment and Uncertainty in Africa
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Date
2012-06
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Addis Ababa University
Abstract
In the past two decades, there has been a significant increase of FDI flow to all developing countries. However, Africa still lags behind in the attraction of this investment. Why African has received a little FDI inflows as compared to other developing countries is the starting question of this study. Theories suggest that the prevailed uncertainty in Africa is considered as a reason for the poor FDI attractions. Having this concept, the paper examines weather macroeconomic uncertainty and political instability affect inflow of foreign direct investment (FDI) to Africa. The study estimates both fixed and dynamic GMM Panel-data models using data from 25 African countries over the period 1995 to 2009. Unconditional standard deviations are applied to capture macroeconomic volatility and state fragility indices are taken to measure political instability and institutional strength towards corruption. We find that macroeconomic volatility proxied by inflation has a deleterious impact on FDI inflows to Africa while exchange rate volatility has no statistical significance. We also find that level of corruption and political instability are not statistical significance
Key word: FDI, Macroeconomic Uncertainty, Political instability and co
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Keywords
Applied Trade Policy Analysis, FDI, Macroeconomic Uncertainty, Political instability