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Does Economic Freedom Improve FDI Inflows in Sub-Saharan Africa?

Author

Listed:
  • Dia, Ibrahima

    (University of YaoundeII)

  • Ondoa, Henri Atangana

    (University of Yaounde II, Cameroon)

Abstract

The objective of this study is to investigate the effect of economic freedom on foreign direct investment (FDI) in Sub-Saharan Africa (SSA). To this end, we employed a panel data analysis across 41 countries over the period 2000-2020. We used a two-stage least squares (2SLS) estimation method to address potential endogeneity issues. We found that economic freedom plays a crucial role in enhancing FDI inflows in SSA. Specifically, the results suggest that certain dimensions of economic freedom, such as the size of government and the legal system and property rights. Have a positive effect on FDI inflows in SSA. Conversely, components or dimensions like sound money and regulation have a negative impact. Freedom to trade has a positive sign on FDI. Regardless, these effects are statistically insignificant. Based on these outcomes, SSA countries should prioritize consolidating public spending on infrastructure development and enhancing the quality of investments in human capital formation. Additionally, strengthening the legal framework by ensuring the rule of law and a functional justice system that effectively safeguards the rights of investors is also necessary.

Suggested Citation

  • Dia, Ibrahima & Ondoa, Henri Atangana, 2023. "Does Economic Freedom Improve FDI Inflows in Sub-Saharan Africa?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 38(3), pages 383-410.
    • Handle: RePEc:ris:integr:0880
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    Keywords

    Economic freedom; FDI; Sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • 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
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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