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Macroeconomic factors affecting FDI in the African region

Author

Listed:
  • Sashini Rathnayake
  • Sanjula Jayakody
  • Pasindu Wannisinghe
  • Deshani Wijayasinghe
  • Ruwan Jayathilaka
  • Naduni Madhavika

Abstract

Foreign Direct Investment (FDI) occurs when one country invests in another. Multiple factors have contributed to fluctuations in FDI flows globally. This study investigates the impact of the Logistics Performance Index (LPI), Global Competitiveness Index (GCI) and Interest Rates (IR) on FDI in the African region. The study is significant because the African region is underdeveloped and with an unstable macroeconomic environment. Data were collected for 26 countries in the African region for the years 2007, 2010, 2012, 2014, 2016 and 2018 and analysed using Panel Regression and Multiple Linear Regression models. The study’s findings concluded that LPI, GCI, and IR are three major macroeconomic factors impacting FDI inflows. The results indicated that LPI positively impacts FDI in Gambia, Lesotho and Rwanda, while in contrast, LPI impacts FDI negatively in Mauritius. GCI has a positive impact on FDI in Algeria and Lesotho with a negative impact in Rwanda, Mauritius and Namibia. Moreover, IR has a negative impact on FDI in Algeria, Rwanda and Mauritius with a positive impact in Lesotho. Policymakers should pay more attention to the infrastructure development and management of macroeconomic and other factors affecting FDI.

Suggested Citation

  • Sashini Rathnayake & Sanjula Jayakody & Pasindu Wannisinghe & Deshani Wijayasinghe & Ruwan Jayathilaka & Naduni Madhavika, 2023. "Macroeconomic factors affecting FDI in the African region," PLOS ONE, Public Library of Science, vol. 18(1), pages 1-9, January.
    • Handle: RePEc:plo:pone00:0280843
    DOI: 10.1371/journal.pone.0280843
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    References listed on IDEAS

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    1. Luisa Mart𓐊Author-X-Name-First: Luisa & Leandro Garc𨀍, 2014. "The importance of the Logistics Performance Index in international trade," Applied Economics, Taylor & Francis Journals, vol. 46(24), pages 2982-2992, August.
    2. Ebenezer Bugri Anarfo & Abel Mawuko Agoba & Robert Abebreseh, 2017. "Foreign Direct Investment in Ghana: The Role of Infrastructural Development and Natural Resources," African Development Review, African Development Bank, vol. 29(4), pages 575-588, December.
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    4. Abel E Ezeoha & Nicolette Cattaneo, 2012. "FDI Flows to Sub-Saharan Africa: The Impact of Finance, Institutions, and Natural Resource Endowment," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 54(3), pages 597-632, September.
    5. Michael Asiamah & Daniel Ofori & Jacob Afful, 2019. "Analysis of the determinants of foreign direct investment in Ghana," Journal of Asian Business and Economic Studies, Emerald Group Publishing Limited, vol. 26(1), pages 56-75, January.
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