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On Geography and Institutions as Determinants of Foreign Direct Investment. A cross country comparative analysis of sub-Saharan African relative to developing countries

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  • Felix Paul Meier zu Selhausen

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    (Cátedra de Cooperación Internacional y con Iberoamérica (COIBA), Universidad de Cantabria)

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    Abstract

    This work explores what factors determine foreign direct investment (FDI) in sub-Sahara Africa (SSA) relative to non-sub-Saharan African countries, using a panel data set which encompasses most of the world´s developing countries between 1997 and 2006. The results indicate that institutions and infrastructure development promoted FDI to non-SSA but did not induce FDI to sub-Saharan Africa. Geography played a modest and indirect role. The marginal benefit from openness to trade was higher for SSA, which is closely related to resource-seeking FDI that did not translate into sustained economic growth, neither institutional change, but consequently crowded out the second FDI wave of manufacturing. At the same time, FDI into value-added manufacturing largely located in non-SSA countries acted as engine for scaling the economic development ladder through institutional improvement for a number of non-SSA countries. Hence, FDI has the potential to act as a reliable and equitable driver of sustained economic development and poverty alleviation. The destiny of the “resource curse” linked to FDI failure marks the novelty of this paper in the FDI and development literature.

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    Bibliographic Info

    Paper provided by Cátedra de Cooperación Internacional y con Iberoamérica (COIBA), Universidad de Cantabria in its series Documentos de trabajo sobre cooperación y desarrollo with number 200906.

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    Date of creation: Dec 2009
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    Handle: RePEc:cci:wpaper:200906

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    Keywords: Foreign direct investment; developing countries; sub-Saharan Africa; resource curse; geography; institutions;

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    1. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
    2. W. A. Naude & W. F. Krugell, 2007. "Investigating geography and institutions as determinants of foreign direct investment in Africa using panel data," Applied Economics, Taylor & Francis Journals, vol. 39(10), pages 1223-1233.
    3. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1992. "What Explains Developing Country Growth?," NBER Working Papers 4132, National Bureau of Economic Research, Inc.
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