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Episode of Foreign Direct Investment Reversal—The Role of Macroeconomic Fundamentals in Sub-Saharan Africa

Author

Listed:
  • Adewale Rafiu Aregbeshola

    (University of South Africa)

  • Ibrahim Ayoade Adekunle

    (University of South Africa)

Abstract

This study investigates the macroeconomic determinants of divestment, shedding light on the role of macroeconomic fundamentals. The results reveal that past divestment decisions impact current actions, highlighting the role of historical patterns. Furthermore, higher inflation rates are found to encourage divestment, likely due to risk aversion in volatile markets, in the same way as foreign interest rates. Additionally, anticipated currency depreciation drives divestment as firms seek to avoid associated consequential financial exposures. On the contrary, higher domestic interest rates are found to temper divestment, while economic growth and political stability show muted effects. Therefore, the study suggests that macroeconomic stability plays a crucial role in mitigating divestment, emphasizing the importance of stable economic conditions in reducing the need for firms to divest.

Suggested Citation

  • Adewale Rafiu Aregbeshola & Ibrahim Ayoade Adekunle, 2025. "Episode of Foreign Direct Investment Reversal—The Role of Macroeconomic Fundamentals in Sub-Saharan Africa," Journal of Industry, Competition and Trade, Springer, vol. 25(1), pages 1-25, December.
    • Handle: RePEc:kap:jincot:v:25:y:2025:i:1:d:10.1007_s10842-025-00447-8
    DOI: 10.1007/s10842-025-00447-8
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    More about this item

    Keywords

    Foreign direct investment (FDI); Divestment; Economic development; Sub-Saharan Africa (SSA); Capital flight; System GMM; Investment flows;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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