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Drivers of foreign direct investment: new evidence from West African regions

Author

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  • Emmanuel Korsah
  • Richmell Baaba Amanamah
  • Prince Gyimah

Abstract

Purpose - This paper aims to empirically investigate the factors attracting foreign direct investment (FDI) inflows into emerging economies. Design/methodology/approach - This study uses secondary data from the World Bank and the Global State of Democracy Indices of 16 West African countries (WACs) over the period from 1989 to 2018. Fixed- and random-effects econometric regression models are used to assess the nexus between 12 macroeconomic indicators (including political risk and cultural factors) and FDI inflows into WACs. Findings - The critical drivers of FDI inflows into WACs are the richness of natural resources, market size or gross domestic product (GDP), imports and exports of goods and services, trade openness and the currency's strength as measured by the exchange rate. The result also reveals that French-speaking countries attract more FDI than other English-speaking countries. The previously cited determinants of FDI, such as infrastructural development, inflation, tax and political stability, are insignificant in determining FDI inflows into WACs. Originality/value - This study uncovers the critical drivers explaining the FDI inflows into WACs, where FDI accounts for 39% of external finance. The study's contribution is that Francophone WACs attract more FDI than Anglophone WACs. The most important drivers of FDI are abundant natural resources, GDP, imports, exports, trade openness and exchange rate.

Suggested Citation

  • Emmanuel Korsah & Richmell Baaba Amanamah & Prince Gyimah, 2022. "Drivers of foreign direct investment: new evidence from West African regions," Journal of Business and Socio-economic Development, Emerald Group Publishing Limited, vol. 5(1), pages 3-19, July.
    • Handle: RePEc:eme:jbsedp:jbsed-12-2021-0173
    DOI: 10.1108/JBSED-12-2021-0173
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    Cited by:

    1. Namountougou, Yentéma, 2024. "Spillover effects of natural resources on the attractiveness of foreign direct investment in ECOWAS countries," Resources Policy, Elsevier, vol. 98(C).

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