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Understanding how foreign direct investment inflows impact urbanization in Africa

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  • Grekou, Carl
  • Owoundi, Ferdinand

Abstract

This paper investigates the relationship between FDIs inflows and urbanization in Africa. To improve on the existing literature, we look beyond the conventional definition of urbanization based only on the number of people living in urban areas. Our broader approach includes both the amount of CO2 emissions in urban areas and the value addition of services. Relying on a large sample of African countries, we find FDIs inflows to have significantly influenced the momentum of urbanization on the continent, irrespective of the proxy for urbanization. Resource-seeking FDIs seems to be more responsible for this phenomenon than the market-seeking ones, implying that FDIs are detrimental to the environment, especially when the quality of institutions is low. These results suggest that African governments should enhance smart, sustainable policies to attract more market-seeking FDI while mitigating detrimental effects on the environment.

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  • Grekou, Carl & Owoundi, Ferdinand, 2020. "Understanding how foreign direct investment inflows impact urbanization in Africa," International Economics, Elsevier, vol. 164(C), pages 48-68.
    • Handle: RePEc:eee:inteco:v:164:y:2020:i:c:p:48-68
    DOI: 10.1016/j.inteco.2020.07.002
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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics

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