Institutions and Foreign Direct Investment Flows in Sub-Saharan Africa
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Date
2021-08
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A.A.U
Abstract
In many developing economies including Sub-Saharan African countries characterized by low
per capita real income, high population growth rate, high rates of unemployment, dependence on
the primary sector, dependence on exports of primary commodities, and a high level of poverty,
and also a low level of domestic investment. By then savings-investment gap occurs. Those
problems are unacceptable and have to change. To increase GDP growth, saving, and
investment; these countries needed Foreign Direct Investment (FDI) as a significant source of
capital inflows to fill the gap to sustain economic growth. Hence, this study aimed at identifying
the effect of institutions on foreign direct investment for Sub-Saharan African countries. To do
so it used the panel data collected from database of World Governance indicators and
Development indicators of 21(twenty-one) selected sample countries of the region observed from
year 2002-2019. It used descriptive statistics and econometric analysis techniques. It employed
the dynamic panel model of System GMM estimator of Arellano and Bover (1995) and Blundell
and Bond (1998) for econometrics analysis part. The study found that institutions are one of the
key factors of foreign direct investment in the host countries. Among the key basic institutional
factors: from governance indicators such as governance effectiveness, control of corruption and
regulatory quality, and in case of the control variables: market size, infrastructural condition,
resources availability, macroeconomic stability, and openness indicators have been explored
their effects on FDI flows to the region. Governance effectiveness, control of corruption, GDP
per capita, population, infrastructure (telephone subscription), access to electricity, and skilled
labor force (school enrolment) are key fundamental factors and have good potential to attract
foreign direct investment flow to the host countries in the SSA region.
Key Words: Sub-Saharan Africa, Foreign Direct Investment, Institution, Governance
Effectiveness, Control of Corruption, Regulatory Quality
Description
Keywords
Foreign Direct Investment, Institution