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Institutions and Foreign Direct Investment: Evidence from Sub-Saharan Africa Regions

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  • John Bbale
  • John Bosco Nnyanzi

Abstract

The paper set out to investigate the nexus between institutional quality and inward FDI and how the presence of liberalization and financial development influence this linkage. We build on Dunning’s eclectic paradigm that focuses on locational advantages. A fixed effects approach is employed and the estimation results confirm the crucial role of institutional quality in attracting FDI inflows. However the impact varies with the particular group. In particular, apart from SADC, institutional quality seems to matter significantly in all the other groups especially in EAC and ECOWAS. Additional findings reveal a mixed impact regarding the presence of financial development and liberalization in the institution-FDI nexus- While Trade liberalization policies seem to be at the forefront in ECOWAS and SADC groups, it is credit depth and capital account openness that appear to matter most in EAC. We confirm the resilience of inward FDI during the global crisis and document a positive significant relationship between FDI inflows on the one hand and host market size and infrastructure development on the other. While a one-size-fits-all-policy should be discouraged due to the heterogeneous nature of SSA countries, overall, a comprehensive set of policies designed with caution to improve the institutional quality, the financial system, trade openness and capital account liberalization would be valuable for attracting FDI inflows to SSA.

Suggested Citation

  • John Bbale & John Bosco Nnyanzi, 2016. "Institutions and Foreign Direct Investment: Evidence from Sub-Saharan Africa Regions," Journal of Sustainable Development, Canadian Center of Science and Education, vol. 9(4), pages 1-11, June.
    • Handle: RePEc:ibn:jsd123:v:9:y:2016:i:4:p:11
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    References listed on IDEAS

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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