IDEAS home Printed from https://ideas.repec.org/p/rri/wpaper/2011wp03.html
   My bibliography  Save this paper

The Role of Institutional Quality in FDI Inflows in Sub-Saharan Africa

Author

Listed:
  • Mulugeta Kahsai

    (Regional Research Institute, West Virginia University)

  • Yohannes Hailu

    (Michigan State University)

  • Chali Nondo

    (Department of Resource Management, West Virginia University)

  • Peter Schaeffer

    (Department of Resource Management, West Virginia University)

Abstract

During the period 2000 to 2008, Africa’s collective GDP grew at an annual rate of 4.9 percent. Even though previous studies argue that strengthened and improved institutional quality is key determinant for attracting foreign direct investment to Africa, we find no evidence to that effect. Using a panel data for 45 Sub-Saharan African countries (SSH), we estimate the role of institutional quality (governance) in attracting FDI inflow during the 1996-2007 period. After controlling for country and time specific effects and the economic environment of the host country, we find no significant evidence of the impact of institutional quality on FDI inflow in our analysis. This finding may suggest that FDI inflow to SSH is potentially motivated by the abundance of raw materials and natural resources than good governance.

Suggested Citation

  • Mulugeta Kahsai & Yohannes Hailu & Chali Nondo & Peter Schaeffer, 2011. "The Role of Institutional Quality in FDI Inflows in Sub-Saharan Africa," Working Papers Working Paper 2011-03, Regional Research Institute, West Virginia University.
  • Handle: RePEc:rri:wpaper:2011wp03
    as

    Download full text from publisher

    File URL: https://researchrepository.wvu.edu/rri_pubs/58/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ghosh Indradeep, 2007. "The Relation between Trade and FDI in Developing Countries -- A Panel Data Approach," Global Economy Journal, De Gruyter, vol. 7(3), pages 1-32, October.
    2. Daniel Kaufmann & Aart Kraay, 2008. "Governance Indicators: Where Are We, Where Should We Be Going?," The World Bank Research Observer, World Bank, vol. 23(1), pages 1-30, January.
    3. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    4. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross‐Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    5. Elizabeth Asiedu, 2006. "Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability," The World Economy, Wiley Blackwell, vol. 29(1), pages 63-77, January.
    6. W. Krugell, 2005. "The Determinants of Foreign Direct Investment in Africa," Contributions to Economics, in: Bernard Michael Gilroy & Thomas Gries & Willem A. Naudé (ed.), Multinational Enterprises, Foreign Direct Investment and Growth in Africa, chapter 3, pages 49-71, Springer.
    7. Hausmann, Ricardo & Fernández-Arias, Eduardo, 2000. "Foreign Direct Investment: Good Cholesterol?," IDB Publications (Working Papers) 1319, Inter-American Development Bank.
    8. Céline Azémar & Rodolphe Desbordes, 2009. "Public Governance, Health and Foreign Direct Investment in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 18(4), pages 667-709, August.
    9. Črt Kostevc & Tjaša Redek & Andrej Sušjan, 2007. "Foreign Direct Investment and Institutional Environment in Transition Economies," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 14(1), pages 40-54, May.
    10. W. A. Naude & W. F. Krugell, 2007. "Investigating geography and institutions as determinants of foreign direct investment in Africa using panel data," Applied Economics, Taylor & Francis Journals, vol. 39(10), pages 1223-1233.
    11. Shang-Jin Wei, 1997. "Why is Corruption So Much More Taxing Than Tax? Arbitrariness Kills," NBER Working Papers 6255, National Bureau of Economic Research, Inc.
    12. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    13. Ricardo Hausmann & Eduardo Fernández-Arias, 2000. "Foreign Direct Investment: Good Cholesterol?," Research Department Publications 4203, Inter-American Development Bank, Research Department.
    14. Adam, Antonis & Filippaios, Fragkiskos, 2007. "Foreign direct investment and civil liberties: A new perspective," European Journal of Political Economy, Elsevier, vol. 23(4), pages 1038-1052, December.
    15. Daniele, Vittorio & Marani, Ugo, 2006. "Do institutions matter for FDI? A comparative analysis for the MENA countries," MPRA Paper 2426, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:rri:wpaper:201103 is not listed on IDEAS
    2. Chali Nondo & Mulugeta S. Kahsai & Yohannes G. Hailu, 2016. "Does institutional quality matter in foreign direct investment?: Evidence from Sub-Saharan African countries," African Journal of Economic and Sustainable Development, Inderscience Enterprises Ltd, vol. 5(1), pages 12-30.
    3. Dollar, David & Hallward-Driemeier, Mary & Mengistae, Taye, 2006. "Investment climate and international integration," World Development, Elsevier, vol. 34(9), pages 1498-1516, September.
    4. dogru, bulent, 2012. "The effect of instıtutıonal varıables on fdi inflows: Evidence from upper-middle income countries," MPRA Paper 37531, University Library of Munich, Germany.
    5. Tidiane KINDA, 2010. "Increasing Private Capital Flows To Developing Countries: The Role Of Physical And Financial Infrastructure In 58 Countries, 1970-2003," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 10(2).
    6. Faria, Andr & Mauro, Paolo, 2009. "Institutions and the external capital structure of countries," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 367-391, April.
    7. Akhtaruzzaman, M. & Berg, Nathan & Hajzler, Christopher, 2017. "Expropriation risk and FDI in developing countries: Does return of capital dominate return on capital?," European Journal of Political Economy, Elsevier, vol. 49(C), pages 84-107.
    8. Bailey, Nicholas, 2018. "Exploring the relationship between institutional factors and FDI attractiveness: A meta-analytic review," International Business Review, Elsevier, vol. 27(1), pages 139-148.
    9. Shang-Jin Wei & Yi Wu, 2002. "Negative Alchemy? Corruption, Composition of Capital Flows, and Currency Crises," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 461-506, National Bureau of Economic Research, Inc.
    10. Adeel Ahmad DAR & Taj MUHAMMAD & M. Wasif SIDDIQI, 2020. "Bureaucratic Quality and FDI Inflows Nexus: A South Asian Perspective," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 149-168, September.
    11. repec:idb:brikps:403 is not listed on IDEAS
    12. Zakharov, Nikita, 2019. "Does corruption hinder investment? Evidence from Russian regions," European Journal of Political Economy, Elsevier, vol. 56(C), pages 39-61.
    13. Tidiane Kinda, 2007. "Increasing Private Capital Flows to Developing Countries : The Role of Physical and Financial Infrastructure," Post-Print hal-00171934, HAL.
    14. Uddin, Moshfique & Chowdhury, Anup & Zafar, Sheeba & Shafique, Sujana & Liu, Jia, 2019. "Institutional determinants of inward FDI: Evidence from Pakistan," International Business Review, Elsevier, vol. 28(2), pages 344-358.
    15. Niti Bhasin & Shilpa Garg, 2020. "Impact of Institutional Environment on Inward FDI: A Case of Select Emerging Market Economies," Global Business Review, International Management Institute, vol. 21(5), pages 1279-1301, October.
    16. Blackburn, Keith & Forgues-Puccio, Gonzalo F., 2009. "Why is corruption less harmful in some countries than in others?," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 797-810, December.
    17. Federico Carril-Caccia & Juliette Milgram-Baleix & Jordi Paniagua, 2019. "Foreign Direct Investment in oil-abundant countries: The role of institutions," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-23, April.
    18. Sèna Kimm Gnangnon, 2020. "Trade Openness and Diversification of External Financial Flows for Development: An Empirical Analysis," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(1), pages 22-57, June.
    19. Eswar Prasad & Shang-Jin Wei, 2007. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 421-480, National Bureau of Economic Research, Inc.
    20. Ngongan, Elie, 2014. "Physical Infrastructures and Attractiveness of Private Capital in Sub-Saharan African (SSA) Countries," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 1(1), pages 7-21.
    21. Mina, Wasseem, 2012. "Beyond FDI: The Influence of Bilateral Investment Treaties on Debt," MPRA Paper 51920, University Library of Munich, Germany.
    22. Edgardo Campos, J. & Lien, Donald & Pradhan, Sanjay, 1999. "The Impact of Corruption on Investment: Predictability Matters," World Development, Elsevier, vol. 27(6), pages 1059-1067, June.

    More about this item

    Keywords

    institutional quality; governance; economic growth; FDI; SSH countries;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • P45 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - International Linkages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rri:wpaper:2011wp03. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Randall Jackson (email available below). General contact details of provider: https://edirc.repec.org/data/rrwvuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.