IDEAS home Printed from https://ideas.repec.org/p/aly/journl/202053.html
   My bibliography  Save this paper

The Role Of Institutions In Determining Fdi Flows Into The Sadc Region

Author

Listed:
  • Dzingai Francis Chapfuwa

    (University of Johannesburg, Faculty of Economics and Econometrics, Johannesburg, South Africa)

Abstract

The aim of this study is to examine the role of institutions in determining Foreign Direct Investment (FDI) flows into the Southern African Development Community (SADC) region. Given the financing gap within SADC and the role of FDI in covering the gap, there is a need for the region to attract more FDI. Traditionally, the most popular instrument for attracting FDI is through fiscal incentives. However, over the years this has failed to attract or deliver the expected levels of FDI inflows into the SADC region. The study applies a panel modelling approach (Fixed Effects Model) for all the SADC countries using annual data from 1996 to 2016. However, to deal with the problem of endogeneity, the study further applies the 2 Stage Least Squares (2SLS) methodology. For robustness check, Dynamic General Method of Moments Technique (GMM) is applied. The results of the model indicated that institutions are important in determining the flow of FDI into the SADC region. However, where the host countries have got natural strategic resources, the role of institutions is overshadowed. The market size was also found to be insignificant. Furthermore, the institutional variables affect FDI inflows differently and one of the major findings is that democratic accountability does not matter in influencing the flow of FDI into the SADC region.

Suggested Citation

  • Dzingai Francis Chapfuwa, "undated". "The Role Of Institutions In Determining Fdi Flows Into The Sadc Region," Review of Socio - Economic Perspectives 202053, Reviewsep.
    • Handle: RePEc:aly:journl:202053
    DOI: https://doi.org/10.19275/RSEP079
    as

    Download full text from publisher

    File URL: https://reviewsep.com/wp-content/uploads/2020/05/1_CHAPFUWA-Arranged.pdf
    Download Restriction: no
    File URL: https://reviewsep.com/?page_id=787
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.19275/RSEP079?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Fathi Ali & Norbert Fiess & Ronald MacDonald, 2010. "Do Institutions Matter for Foreign Direct Investment?," Open Economies Review, Springer, vol. 21(2), pages 201-219, April.
    2. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.
    3. 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.
    4. Elizabeth Asiedu, 2006. "Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability," The World Economy, Wiley Blackwell, vol. 29(1), pages 63-77, January.
    5. Tony Addison & Almas Heshmati, 2003. "The New Global Determinants of FDI Flows to Developing Countries: The Importance of ICT and Democratization," WIDER Working Paper Series DP2003-45, World Institute for Development Economic Research (UNU-WIDER).
    6. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    7. John Francis & CongCong Zheng & Ananda Mukherji, 2009. "An Institutional Perspective on Foreign Direct Investment," Management International Review, Springer, vol. 49(5), pages 565-583, October.
    8. Asiedu, Elizabeth & Lien, Donald, 2011. "Democracy, foreign direct investment and natural resources," Journal of International Economics, Elsevier, vol. 84(1), pages 99-111, May.
    9. Dani Rodrik, 2006. "Institutions for High-Quality Growth: What They Are and How to Acquire Them," Chapters, in: Kartik Roy & Jörn Sideras (ed.), Institutions, Globalisation and Empowerment, chapter 2, Edward Elgar Publishing.
    10. Dunning, John H, 1973. "The Determinants of International Production," Oxford Economic Papers, Oxford University Press, vol. 25(3), pages 289-336, November.
    11. Forget Mingiri Kapingura & Sylvanus Ikhide & Asrat Tsegaye, 2018. "Determinants of external financial flows to the Southern African development community region: an empirical study," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 20(2), pages 141-160.
    12. Papaioannou, Elias, 2009. "What drives international financial flows? Politics, institutions and other determinants," Journal of Development Economics, Elsevier, vol. 88(2), pages 269-281, March.
    13. Devrim Dumludag, 2008. "An analysis of the determinants of foreign direct investment in turkey: The role of the institutional context-super-1," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 10(1), pages 15-30, December.
    14. dumludag, devrim, 2007. "An analysis of the determinants of foreign direct investment in Turkey: the role of the institutional context," MPRA Paper 32060, University Library of Munich, Germany, revised Feb 2008.
    15. Jensen, Nathan M., 2003. "Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment," International Organization, Cambridge University Press, vol. 57(3), pages 587-616, July.
    16. Cao Xun, 2009. "Domestic Economic Policies, Political Institutions, and Transnational Portfolio Investments," Business and Politics, De Gruyter, vol. 11(1), pages 1-38, April.
    17. Cao, Xun, 2009. "Domestic Economic Policies, Political Institutions, and Transnational Portfolio Investments," Business and Politics, Cambridge University Press, vol. 11(1), pages 1-36, April.
    18. Patrick J. W. Egan, 2015. "Crawling up the value chain: domestic institutions and non-traditional foreign direct investment in Brazil, 1990-2010," Brazilian Journal of Political Economy, Center of Political Economy, vol. 35(1), pages 156-174.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Akhtaruzzaman, M. & Berg, Nathan & Hajzler, Christopher, 2017. "Expropriation risk and FDI in developing countries: Does return of capital dominate return on capital?," European Journal of Political Economy, Elsevier, vol. 49(C), pages 84-107.
    2. Fathi Ali & Norbert Fiess & Ronald MacDonald, 2010. "Do Institutions Matter for Foreign Direct Investment?," Open Economies Review, Springer, vol. 21(2), pages 201-219, April.
    3. Tag, Mehmet Nasih, 2021. "Judicial institutions of property rights protection and foreign direct investment inflows," International Review of Law and Economics, Elsevier, vol. 65(C).
    4. Federico Carril-Caccia & Juliette Milgram-Baleix & Jordi Paniagua, 2019. "Foreign Direct Investment in oil-abundant countries: The role of institutions," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-23, April.
    5. Ludovic Feulefack Kemmanang & Jonas Juleo Dongmo Zamké, 2022. "Does the quality of institutions matter for foreign investment concentration in Africa? Understanding the controversial role of international aid," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 354-374, February.
    6. Sèna Kimm Gnangnon, 2022. "Aid for Trade, export product diversification, and foreign direct investment," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 534-561, February.
    7. Andreia Olival, 2012. "The influence of Doing Business’ institutional variables in Foreign Direct Investment," GEE Papers 0048, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Dec 2012.
    8. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "The foreign direct investment-institution nexus in oil-abundant countries," Working Papers 1903, Department of Applied Economics II, Universidad de Valencia.
    9. Philipp Harms & Pierre-Guillaume Méon, 2013. "The Composition of FDI in the MENA Region and Other Countries: Econometric Investigation and Implications for MENA Countries," Working Papers 793, Economic Research Forum, revised Nov 2013.
    10. John Anyanwu, 2011. "Working Paper 136 - Determinants of Foreign Direct Investment Inflows to Africa, 1980-2007," Working Paper Series 327, African Development Bank.
    11. Mumtaz Hussain Shah, 2017. "Political Institutions and the Incidence of FDI in South Asia," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(1), pages 21-42, March.
    12. Mehmet Pinar & Thanasis Stengos, 2021. "Democracy in the neighborhood and foreign direct investment," Review of Development Economics, Wiley Blackwell, vol. 25(1), pages 449-477, February.
    13. Céline Azémar & Rodolphe Desbordes, 2009. "Public Governance, Health and Foreign Direct Investment in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 18(4), pages 667-709, August.
    14. Bailey, Nicholas, 2018. "Exploring the relationship between institutional factors and FDI attractiveness: A meta-analytic review," International Business Review, Elsevier, vol. 27(1), pages 139-148.
    15. Akisik, Orhan, 2020. "The impact of financial development, IFRS, and rule of LAW on foreign investments: A cross-country analysis," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 815-838.
    16. Lucke, Bernd & Rehfeldt, Erik, 2022. "How does expropriation affect FDI? A synthetic control analysis of oil and gas sector nationalizations in South America," MPRA Paper 115374, University Library of Munich, Germany.
    17. Helmi Hammami & Moez Hammami & Siriki Coulibaly & Mariem Marzouk, 2020. "Determinants of FDI attractiveness: A MCI model approach," Economics Bulletin, AccessEcon, vol. 40(2), pages 1033-1048.
    18. Ugur, Mehmet & Dasgupta, Nandini, 2011. "Corruption and economic growth: A meta-analysis of the evidence on low-income countries and beyond," MPRA Paper 31226, University Library of Munich, Germany, revised 31 May 2011.
    19. Uddin, Moshfique & Chowdhury, Anup & Zafar, Sheeba & Shafique, Sujana & Liu, Jia, 2019. "Institutional determinants of inward FDI: Evidence from Pakistan," International Business Review, Elsevier, vol. 28(2), pages 344-358.
    20. Caroline Witte & Martijn Burger & Elena Ianchovichina & Enrico Pennings, 2014. "Political Violence and Greenfield Foreign Direct Investment in Natural Resources," Working Papers 2014/23, Maastricht School of Management.

    More about this item

    Keywords

    Foreign Direct Investment; Institutions; SADC; MNCs;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aly:journl:202053. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Veysel KAYA (email available below). General contact details of provider: https://edirc.repec.org/data/degraus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.