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Foreign Direct Investment in Africa: What are the Key Factors of Attraction aside from Natural Resources?

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  • Bertrand BLANCHETON (GREThA UMR CNRS 5113)
  • Lambert OPARA-OPIMBA (Université de Bordeaux)

Abstract

This input, essentially empirical by nature, analyses the FDI determinants in Africa independently from the already clearly identified attraction of natural resources. Do powers of anticipation as to the general prospects for these economies influence incoming flows of capital? What role is played by socio-political instability connected to the social consequences caused by conflicts? Are the processes of regionalization enhancing the appeal of countries that are going down that path? From a panel of 28 African countries, the results from estimations obtained using the Hausman-Taylor method of instrumental variables show that the impact of projections on any ongoing decision to invest in the continent is not statistically significant. Our results also show that, although negative, the direct correlation between social risk, a proxy of socio-political instability, and flows of foreign investment is not systematically significant.. However, the fact remains that these instabilities undermine national competencies (human capital) and compound certain ills such as HIV/Aids, whose impact on foreign investment increases along a negative curve in the presence of social risk. However, the simultaneous introduction of regionalization processes into our estimations tends to lower the adverse effects of instability on certain explicative FDI variables.

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Paper provided by Groupe de Recherche en Economie Théorique et Appliquée in its series Cahiers du GREThA with number 2010-14.

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Date of creation: 2010
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Handle: RePEc:grt:wpegrt:2010-14

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Keywords: Foreign Direct Investment (FDI); African economies; projections/anticipations; risk and socio-political instability; regional integration;

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  1. V N Balasubramanyam & M Salisu & David Sapsford., . "Foreign Direct Investment and Growth in EP and IS Countries," Working Papers ec18/94, Department of Economics, University of Lancaster.
  2. Manuel Agosin & Roberto Machado, 2005. "Foreign Investment in Developing Countries: Does it Crowd in Domestic Investment?," Oxford Development Studies, Taylor & Francis Journals, vol. 33(2), pages 149-162.
  3. Xavier Sala-i-Martin, 1996. "Transfers, Social Safety Nets, and Economic Growth," IMF Working Papers 96/40, International Monetary Fund.
  4. Raphael Kaplinsky & Mike Morris, 2009. "Chinese FDI in Sub-Saharan Africa: Engaging with Large Dragons," The European Journal of Development Research, Palgrave Macmillan, vol. 21(4), pages 551-569, September.
  5. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
  6. Martin, Philippe & Rogers, Carol Ann, 1995. "Stabilization Policy, Learning by Doing, and Economic Growth," CEPR Discussion Papers 1130, C.E.P.R. Discussion Papers.
  7. Markusen, James & Rutherford, Thomas F. & Tarr, David, 2000. "Foreign direct investment in services and the domestic market for expertise," Policy Research Working Paper Series 2413, The World Bank.
  8. Abigail Barr, 1995. "The missing factor: entrepreneurial networks, enterprises and economic growth in Ghana," CSAE Working Paper Series 1995-11, Centre for the Study of African Economies, University of Oxford.
  9. Aristomène Varoudakis & Jean-Claude Berthélemy & Sébastien Dessus, 1997. "Capital humain et croissance : le rôle du régime commercial," Revue Économique, Programme National Persée, vol. 48(3), pages 419-428.
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