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

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Listed:
  • Mhlanga, Nomathemba
  • Blalock, Garrick
  • Christy, Ralph D.

Abstract

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.

Suggested Citation

  • Mhlanga, Nomathemba & Blalock, Garrick & Christy, Ralph D., 2009. "Understanding Foreign Direct Investment in the Southern African Development Community: An Analysis Based on Project-Level Data," 2009 Conference, August 16-22, 2009, Beijing, China 51632, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae09:51632
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    File URL: http://purl.umn.edu/51632
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    References listed on IDEAS

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    1. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(1), pages 1-31, March.
    2. 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.
    3. Chakrabarti, Avik, 2001. "The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross-Country Regressions," Kyklos, Wiley Blackwell, vol. 54(1), pages 89-113.
    4. Addison, Tony & Heshmati, Almas, 2003. "The New Global Determinants of FDI Flows to Developing Countries: The Importance of ICT and Democratization," WIDER Working Paper Series 045, World Institute for Development Economic Research (UNU-WIDER).
    5. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
    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. 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.
    8. Keith D Brouthers, 2002. "Institutional, Cultural and Transaction Cost Influences on Entry Mode Choice and Performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(2), pages 203-221, June.
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    More about this item

    Keywords

    Foreign Direct Investment; determinants; Africa; International Development; Research Methods/ Statistical Methods; F23; O55;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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