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Does the presence of democratic traits enhance Africa’s appeal for foreign direct investment?

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  • Kazeem Bello Ajide

    (University of Lagos)

Abstract

This study examines the relationship between democracy and foreign direct investment (FDI) in 40 African nations using a two-step generalized method of moments (GMM) analysis. It explores five varieties of democracy and fifteen democratic traits. The findings reveal that egalitarian and deliberative democracies significantly attract FDI, with deliberative democracy having a particularly strong effect. Unlike egalitarian and deliberative democracies, participative democracy has a reducing impact on FDI. Similarly, nine democratic traits were found to significantly attract FDI. Economic factors like per capita GDP and natural resource rents showed mixed effects on FDI inflows, suggesting that the quality of democratic governance is crucial. Policy implications include strengthening democratic institutions, improving legal frameworks, ensuring fair elections, and enhancing government accountability to create a favorable investment climate. Policymakers are encouraged to focus on these areas to boost FDI and promote economic growth and development across the continent.

Suggested Citation

  • Kazeem Bello Ajide, 2024. "Does the presence of democratic traits enhance Africa’s appeal for foreign direct investment?," Economic Change and Restructuring, Springer, vol. 57(6), pages 1-43, December.
    • Handle: RePEc:kap:ecopln:v:57:y:2024:i:6:d:10.1007_s10644-024-09820-9
    DOI: 10.1007/s10644-024-09820-9
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    More about this item

    Keywords

    Democracy; Foreign direct investment; Panel data analysis; Two-step GMM; Africa;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • P12 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Enterprises

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