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The Impact of Governing Institutions on Foreign Direct Investment Flows: Evidence from African Nations

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  • David A. Wernick
  • Jerry Haar
  • Latika Sharma

Abstract

Over the last two decades, industrialized nations and multilateral financial institutions have encouraged less developed countries to undertake institutional reforms to hasten socioeconomic development. Implicit in this advice is the idea that reform-minded countries will receive a foreign direct investment (FDI) dividend. But do nations with strong institutions attract proportionally greater levels of foreign direct investment (FDI) than those with weaker institutions? This study addresses that question by evaluating data on FDI inflows for a sample of African nations. We begin with a review of the literature on the determinants of FDI and the link between institutions and FDI flows to emerging economies. Next, we offer hypotheses about the nature of these flows and test them using statistical analysis. The paper concludes by interpreting the results, considering their policy implications, and offering directions for future research.

Suggested Citation

  • David A. Wernick & Jerry Haar & Latika Sharma, 2014. "The Impact of Governing Institutions on Foreign Direct Investment Flows: Evidence from African Nations," International Journal of Business Administration, International Journal of Business Administration, Sciedu Press, vol. 5(2), pages 1-12, March.
    • Handle: RePEc:jfr:ijba11:v:5:y:2014:i:2:p:1-12
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    References listed on IDEAS

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    2. Alexis Vessat, 2017. "The role of unmet demand in the dynamics of energy supply forms: The case of electricity market structures in sub-Saharan Africa," Post-Print hal-01944317, HAL.
    3. Zeravan Abdulmuhsen Asaad & Bayar MohamedRasheed Marane, 2020. "The Influence of Human Development, Institutional Quality and ISIS Emergence on Foreign Direct Investment in Iraq," Technium Social Sciences Journal, Technium Science, vol. 10(1), pages 318-332, August.
    4. Humaira Raffat & Danish Ahmed Siddiqui, 2020. "Does Openness, and Productivity Matters for FDI: A Global Interactive Analysis Based on the Complementary Role of Institutions," Issues in Economics and Business, Macrothink Institute, vol. 6(2), pages 1-21, December.
    5. Yang Li & Erick W. Rengifo, 2018. "The Impact of Institutions and Exchange Rate Volatility on China’s Outward FDI," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(12), pages 2778-2798, September.

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