Foreign Direct Investment and Uncertainty in Africa
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Date
2012-06
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A.A.U
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 FDJ attractions. Having this concept, the paper examines wheather macroeconomic
uncertainty and political instability affect inflow offoreign 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
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Keywords
Macroeconomic Uncertainty, Political instability