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Industrialization, FDI and absorptive capacities: evidence from African Countries

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Abstract

This paper assesses the effect of foreign direct investment (FDI) on the industrialization of African economies. In particular, we address the nonlinearity issue and investigate the role of the recipient countries’ absorptive capacities as a catalyst of foreign investments' spillover effects. The empirical framework considers a panel of 46 countries over the 1998–2019 period. The SGMM estimates highlight a two-threshold relationship between FDI and industrial output. FDI should range between an upper and a lower bound to produce a positive effect on domestic industries. Our findings also suggest that weakly industrialized countries and countries endowed with high absorptive capacities are those taking advantage from the spillover effects generated by FDI. Finally, estimation results reveal that financial development, human capital, infrastructure and the legal framework are the main channels through which FDI contributes to promote the industrialization process in Africa.

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Notes

  1. Our initial sample included all the African countries (55 countries). During the estimation process, data unavailability and discontinuity led to a restriction of the sample to 46 countries.

  2. For the third interval (FDI > 54.42%), the number of observations was insufficient to run the estimation.

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Authors and Affiliations

  1. IHEC, LaREMFiQ, University of Sousse, PB 40, 4054, Sousse, Tunisia

    Sami Ben Mim

  2. IHEC, University of Sousse, PB 40, 4054, Sousse, Tunisia

    Abir Hedi

  3. College of Business and Economics, Qatar University, P.O. Box, 2713, Doha, Qatar

    Mohamed Sami Ben Ali

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  1. Sami Ben Mim
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  2. Abir Hedi
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  3. Mohamed Sami Ben Ali
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Correspondence to Mohamed Sami Ben Ali.

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Appendix

Appendix

See Tables 4, 5, 6, and 7.

Table 4 Data sources and description
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Table 5 List of countries
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Table 6 Descriptive statistics
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Table 7 Pair-wise correlation matrix
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Ben Mim, S., Hedi, A. & Ben Ali, M. Industrialization, FDI and absorptive capacities: evidence from African Countries. Econ Change Restruct 55, 1739–1766 (2022). https://doi.org/10.1007/s10644-021-09366-0

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