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The Role of Institutional Quality in FDI Inflows in Sub-Saharan Africa

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  • Mulugeta Kahsai

    ()
    (Regional Research Institute, West Virginia University)

  • Yohannes Hailu

    (Michigan State University)

  • Chali Nondo

    ()
    (Department of Resource Management, West Virginia University)

  • Peter Schaeffer

    ()
    (Department of Resource Management, West Virginia University)

Abstract

During the period 2000 to 2008, Africa’s collective GDP grew at an annual rate of 4.9 percent. Even though previous studies argue that strengthened and improved institutional quality is key determinant for attracting foreign direct investment to Africa, we find no evidence to that effect. Using a panel data for 45 Sub-Saharan African countries (SSH), we estimate the role of institutional quality (governance) in attracting FDI inflow during the 1996-2007 period. After controlling for country and time specific effects and the economic environment of the host country, we find no significant evidence of the impact of institutional quality on FDI inflow in our analysis. This finding may suggest that FDI inflow to SSH is potentially motivated by the abundance of raw materials and natural resources than good governance.

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Bibliographic Info

Paper provided by Regional Research Institute, West Virginia University in its series Working Papers with number 201103.

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Length: 22 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:rri:wpaper:201103

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Keywords: institutional quality; governance; economic growth; FDI; SSH countries;

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  1. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," William Davidson Institute Working Papers Series 63, William Davidson Institute at the University of Michigan.
  2. Daniele, Vittorio & Marani, Ugo, 2006. "Do institutions matter for FDI? A comparative analysis for the MENA countries," MPRA Paper 2426, University Library of Munich, Germany.
  3. Črt Kostevc & Tjaša Redek & Andrej Sušjan, 2007. "Foreign Direct Investment and Institutional Environment in Transition Economies," Transition Studies Review, Springer, vol. 14(1), pages 40-54, May.
  4. Ghosh Indradeep, 2007. "The Relation between Trade and FDI in Developing Countries -- A Panel Data Approach," Global Economy Journal, De Gruyter, vol. 7(3), pages 1-32, October.
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