Determinants of Foreign Direct Investment Inflows to Africa

  • Alemayehu Geda
  • Addis Yimer
Chapter

Abstract

Based on a new analytical country classification of African economies as fragile, factor and investment driven economies, we identify the main determinants of FDI inflows to Africa. Using a panel co-integration approach for the period 1996–2012 we find market size, availability of natural resources, openness to international trade, a stable macroeconomic environment, better infrastructure and an effective bureaucracy to have a strong positive impact in attracting FDI to Africa. On the other hand, political and macroeconomic instability and high financial and transfer risks have a negative effect in attracting FDI to the continent. However, the effect of these factors varies significantly across the analytical country classification that we have developed. Among all FDI determinants only government effectiveness and natural resource abundance are important across all countries. This suggests the importance of emphasizing different policies in different countries or country groups. Moreover, our analysis also suggests that the new analytical classification developed in this study can be an important guide for operational and analytical works of continental organizations such as the African Development Bank, the Economic Commission for Africa and the African Union.

Keywords

FDI Determinants Fragile Factor driven Investment driven Institutions Africa 

JEL Classification Codes

F21 F23 F53 

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Alemayehu Geda
    • 1
  • Addis Yimer
    • 1
  1. 1.Department of Economics, College of Business and EconomicsAddis Ababa UniversityAddis AbabaEthiopia

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