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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
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    File URL: https://researchrepository.wvu.edu/rri_pubs/58/
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    References listed on IDEAS

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    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

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