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Beyond natural resources: horizontal and vertical FDI diversification in Sub-Saharan Africa

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  • Tidiane Kinda

Abstract

This article uses firm-level data to analyse the drivers of Foreign Direct Investment (FDI) to the manufacturing and services sectors of 30 Sub-Saharan African countries. It shows that improving the investment climate helps to attract aggregate FDI. By analysing disaggregate FDI data, the article establishes that there is considerable contrast in behaviour between vertical FDI (foreign firms producing for export) and horizontal FDI (foreign firms producing for local markets). In particular, the latter firms are attracted to areas with higher trade regulations, highlighting their interest in protected markets. Furthermore, horizontal FDI is more affected by financing and human capital constraints and less affected by infrastructure and institutional constraints than vertical FDI is.

Suggested Citation

  • Tidiane Kinda, 2013. "Beyond natural resources: horizontal and vertical FDI diversification in Sub-Saharan Africa," Applied Economics, Taylor & Francis Journals, vol. 45(25), pages 3587-3598, September.
    • Handle: RePEc:taf:applec:v:45:y:2013:i:25:p:3587-3598
    DOI: 10.1080/00036846.2012.678982
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    1. Smarzynska, Beata K. & Shang-Jin Wei, 2000. "Corruption and the composition of foreign direct investment - firm-level evidence," Policy Research Working Paper Series 2360, The World Bank.
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    Cited by:

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    2. Zacharias Papanikolaou & Fani Kefala & Christos Karelakis & George Theodosiou & Apostolos Goulas, 2022. "Cities in Competition: Is There a Link between Entrepreneurship and Development?," World, MDPI, vol. 3(4), pages 1-15, November.
    3. Huang, Youxing & Yang, Yu, 2023. "Determinants of Chinese energy OFDI location decisions and entry failure risk: The roles of public diplomacy endeavors and firm investment strategies," Energy, Elsevier, vol. 267(C).
    4. Dmitriy G. Rodionov & Evgenii A. Konnikov & Magomedgusen N. Nasrutdinov, 2021. "A Transformation of the Approach to Evaluating a Region’s Investment Attractiveness as a Consequence of the COVID-19 Pandemic," Economies, MDPI, vol. 9(2), pages 1-20, April.
    5. Thompson, Edmund R. & Dericks, Gerard H. & Fai, Felicia, 2019. "Development and validation of a firm-level vertical and horizontal internationalization metric," International Business Review, Elsevier, vol. 28(3), pages 533-543.
    6. Faik Bilgili & Nadide S. Tülüce & Ibrahim Doğan & H. Hilal Bağlıtas, 2016. "The causality between FDI and sector-specific production in Turkey: evidence from threshold cointegration with regime shifts," Applied Economics, Taylor & Francis Journals, vol. 48(5), pages 345-360, January.
    7. Aruna Gounder & Rod Falvey & Gulasekaran Rajaguru, 2019. "The Effects of Preferential Trade Agreements on Foreign Direct Investment: Evidence from the African Caribbean Pacific Region," Open Economies Review, Springer, vol. 30(4), pages 695-717, September.
    8. Nvuh‐Njoya Youssouf & Keneck‐Massil Joseph & Yogo Urbain Thierry, 2024. "Constitutional instability and foreign direct investment in Africa," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(1), pages 3-23, January.
    9. Yao‐Yu Chih & Ruby P. Kishan & Andrew Ojede, 2022. "Be good to thy neighbours: A spatial analysis of foreign direct investment and economic growth in sub‐Saharan Africa," The World Economy, Wiley Blackwell, vol. 45(3), pages 657-701, March.
    10. Grekou, Carl & Owoundi, Ferdinand, 2020. "Understanding how foreign direct investment inflows impact urbanization in Africa," International Economics, Elsevier, vol. 164(C), pages 48-68.
    11. Cleeve, Emmanuel A. & Debrah, Yaw & Yiheyis, Zelealem, 2015. "Human Capital and FDI Inflow: An Assessment of the African Case," World Development, Elsevier, vol. 74(C), pages 1-14.

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