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Understanding Foreign Direct Investment in the Southern African Development Community: An Analysis Based on Project-Level Data

  • Mhlanga, Nomathemba
  • Blalock, Garrick
  • Christy, Ralph D.
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    This paper uses a uniquely rich project-level dataset to analyze determinants and trends of FDI flows to the Southern African Development Community (SADC) region. We control for the source of the investment, the sector in which the investment is undertaken, and the investment type in addition to project size. The results indicate market size to have a positive impact on FDI flows under all specifications- a result consistent with earlier studies. Other variables are unstable depending on specification and the subset of the data used. Furthermore, we find no significant differences in factors that drive FDI flows by source country, while greenfield investments are seen to respond more to the growth potential of the market relative to other forms of investment. In general, we find macroeconomic variables to be poor at explaining project-level FDI in the region. The descriptive analysis of the data points us more in the direction of the gravity model, with factors such as colonial ties and proximity of the investing country appearing to matter. Limited flows and minimal sectoral diversity, calls for enhanced investment promotion and collaborative efforts among member states.

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    Paper provided by International Association of Agricultural Economists in its series 2009 Conference, August 16-22, 2009, Beijing, China with number 51632.

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    Date of creation: 2009
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    Handle: RePEc:ags:iaae09:51632
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    1. Asiedu, Elizabeth, 2002. "On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?," World Development, Elsevier, vol. 30(1), pages 107-119, January.
    2. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan, vol. 19(1), pages 1-31, March.
    3. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
    4. Kupukile Mlambo, 2005. "Reviving Foreign Direct Investments in Southern Africa: Constraints and Policies," African Development Review, African Development Bank, vol. 17(3), pages 552-579.
    5. Keith D Brouthers, 2002. "Institutional, Cultural and Transaction Cost Influences on Entry Mode Choice and Performance," Journal of International Business Studies, Palgrave Macmillan, vol. 33(2), pages 203-221, June.
    6. Gastanaga, Victor M. & Nugent, Jeffrey B. & Pashamova, Bistra, 1998. "Host Country Reforms and FDI Inflows: How Much Difference do they Make?," World Development, Elsevier, vol. 26(7), pages 1299-1314, July.
    7. Addison, Tony & Heshmati, Almas, 2003. "The New Global Determinants of FDI Flows to Developing Countries: The Importance of ICT and Democratization," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    8. Chakrabarti, Avik, 2001. "The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross-Country Regressions," Kyklos, Wiley Blackwell, vol. 54(1), pages 89-113.
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