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Remittances, market size, and foreign direct investment: a case of sub-Saharan Africa

Author

Listed:
  • William A. Amponsah

    (Georgia Southern University)

  • Pablo A. Garcia-Fuentes

    (Midwestern State University)

  • Joseph A. Smalley

    (Midwestern State University)

Abstract

This study covers the period 1981–2014 and uses an unbalanced panel data set for 85 developing countries. It assesses the effect of remittances through per capita GDP on FDI inflows to Sub-Saharan Africa (SSA) and compares its performance in attracting FDI with the other developing regions. The results show a positive effect of remittances on FDI, but it depends on the level of per capita GDP of the host country. That is, an increase in remittances by one standard deviation, on average, increases FDI inflows by 0.09% a year. Remittances have a positive effect on FDI in 43 countries, and eight of them are in SSA. In addition, a SSA country receives about 0.8% more FDI than the average country in ASIA, but there is no difference between SSA and Latin America and the Caribbean, and SSA and the Middle East and North Africa. Further, the growth rate of the host country’s GDP has a positive effect on FDI, which supports the market size hypothesis.

Suggested Citation

  • William A. Amponsah & Pablo A. Garcia-Fuentes & Joseph A. Smalley, 2020. "Remittances, market size, and foreign direct investment: a case of sub-Saharan Africa," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(2), pages 238-257, April.
    • Handle: RePEc:spr:jecfin:v:44:y:2020:i:2:d:10.1007_s12197-019-09484-6
    DOI: 10.1007/s12197-019-09484-6
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    More about this item

    Keywords

    Foreign direct investment; Remittances; Market size; Sub-Saharan Africa; Developing regions;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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