IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/95944.html
   My bibliography  Save this paper

Governance and Foreign Direct Investment : A comparative Analysis between Low and Middle Income African Countries

Author

Listed:
  • Bouchoucha, Najeh
  • Yahyaoui, Ismahen

Abstract

This paper investigates the effect of governance on FDI on a sample of 41 African countries: 20 low income countries and 21 middle income countries, over the period of 1996-2013.Our study moves from an aggregated analysis to a disaggregated analysis by applying the system generalized method of moments (System-GMM). The aggregated approach consists to use a composite institutional quality index, which includes the six dimensions of governance to identify the overall impact of governance on FDI inflows. While, the iterative approach examines the effect of the six dimensions of governance on FDI. Our results indicate that good governance is a deterministic condition in attractiveness of FDI in African economies.

Suggested Citation

  • Bouchoucha, Najeh & Yahyaoui, Ismahen, 2019. "Governance and Foreign Direct Investment : A comparative Analysis between Low and Middle Income African Countries," MPRA Paper 95944, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:95944
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/95944/1/MPRA_paper_95944.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nuno Carlos Leit o, 2015. "Energy Consumption and Foreign Direct Investment: A Panel Data Analysis for Portugal," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 138-147.
    2. Yuko Kinoshita & Nauro F. Campos, 2003. "Why Does Fdi Go Where it Goes? New Evidence From the Transition Economies," IMF Working Papers 2003/228, International Monetary Fund.
    3. Eric Rougier & M. Alaya & Dalila Nicet-Chenaf, 2007. "Politiques publiques et dynamique de croissance et de convergence dans les PSEM : D'une convergence des politiques à la convergence économique ?," Post-Print hal-00155068, HAL.
    4. Christian Daude & Ernesto Stein, 2007. "The Quality Of Institutions And Foreign Direct Investment," Economics and Politics, Wiley Blackwell, vol. 19(3), pages 317-344, November.
    5. Lionel Artige & Rosella Nicolini, 2005. "Evidence on the Determinants of Foreign Direct Investment: The Case of Three European Regions," UFAE and IAE Working Papers 655.05, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    6. Globerman, Steven & Shapiro, Daniel, 2002. "Global Foreign Direct Investment Flows: The Role of Governance Infrastructure," World Development, Elsevier, vol. 30(11), pages 1899-1919, November.
    7. 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.
    8. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    9. Azmat Gani, 2007. "Governance and foreign direct investment links: evidence from panel data estimations," Applied Economics Letters, Taylor & Francis Journals, vol. 14(10), pages 753-756.
    10. Marcella Alsan & David E. Bloom & David Canning, 2004. "The Effect of Population Health on Foreign Direct Investment," NBER Working Papers 10596, National Bureau of Economic Research, Inc.
    11. David A. Wernick & Jerry Haar & Shane Singh, 2009. "Do governing institutions affect foreign direct investment inflows? New evidence from emerging economies," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 1(3), pages 317-332.
    12. Root, Franklin R & Ahmed, Ahmed A, 1979. "Empirical Determinants of Manufacturing Direct Foreign Investment in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 27(4), pages 751-767, July.
    13. Stoian, Carmen & Filippaios, Fragkiskos, 2008. "Dunning's eclectic paradigm: A holistic, yet context specific framework for analysing the determinants of outward FDI: Evidence from international Greek investments," International Business Review, Elsevier, vol. 17(3), pages 349-367, June.
    14. Buchanan, Bonnie G. & Le, Quan V. & Rishi, Meenakshi, 2012. "Foreign direct investment and institutional quality: Some empirical evidence," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 81-89.
    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. John Anyanwu, 2011. "Working Paper 136 - Determinants of Foreign Direct Investment Inflows to Africa, 1980-2007," Working Paper Series 327, African Development Bank.
    17. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    18. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    19. Camilla Jensen, 2006. "Foreign Direct Investment and economic transition: Panacea or pain killer?," Europe-Asia Studies, Taylor & Francis Journals, vol. 58(6), pages 881-902.
    20. Marc Lautier & Francois Moreaub, 2012. "Domestic Investment And Fdi In Developing Countries: The Missing Link," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(3), pages 1-23, September.
    21. Dupasquier, Chantal & Osakwe, Patrick N., 2006. "Foreign direct investment in Africa: Performance, challenges, and responsibilities," Journal of Asian Economics, Elsevier, vol. 17(2), pages 241-260, April.
    22. Asiedu, Elizabeth & Villamil, Anne P., 2000. "Discount Factors And Thresholds: Foreign Investment When Enforcement Is Imperfect," Macroeconomic Dynamics, Cambridge University Press, vol. 4(1), pages 1-21, March.
    23. 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.
    24. John H Dunning, 1998. "Location and the Multinational Enterprise: A Neglected Factor?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(1), pages 45-66, March.
    25. Mohsin Habib & Leon Zurawicki, 2002. "Corruption and Foreign Direct Investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(2), pages 291-307, June.
    26. Alsan, Marcella & Bloom, David E. & Canning, David, 2006. "The effect of population health on foreign direct investment inflows to low- and middle-income countries," World Development, Elsevier, vol. 34(4), pages 613-630, April.
    27. Sevestre, P., 1985. "Exogenous variables and asymptotic bias in dynamic models with autocorrelated errors : A note," Economics Letters, Elsevier, vol. 18(4), pages 355-360.
    28. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
    29. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    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. Bersan Haliti & Safet Merovci, 2020. "The Impact of the Investment Environment on Foreign Direct Investment (FDI) in the European Transition Economies," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 138-147, March.
    4. 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.
    5. 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).
    6. Asamoah, Michael Effah & Adjasi, Charles K.D. & Alhassan, Abdul Latif, 2016. "Macroeconomic uncertainty, foreign direct investment and institutional quality: Evidence from Sub-Saharan Africa," Economic Systems, Elsevier, vol. 40(4), pages 612-621.
    7. Zühal Kurul & A. Yasemin Yalta, 2017. "Relationship between Institutional Factors and FDI Flows in Developing Countries: New Evidence from Dynamic Panel Estimation," Economies, MDPI, vol. 5(2), pages 1-10, May.
    8. 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.
    9. Dimitra Mitsi & Constantina Kottaridi, 2022. "Fiscal and non-fiscal institutional context effects and foreign direct investment: empirical evidence in developing countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 72(1-2), pages 11-33, January-J.
    10. Konstantinos Dellis, 2018. "Financial development and FDI flows: evidence from advanced economies," Working Papers 254, Bank of Greece.
    11. 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.
    12. John C. Anyanwu, 2012. "Why Does Foreign Direct Investment Go Where It Goes?: New Evidence From African Countries," Annals of Economics and Finance, Society for AEF, vol. 13(2), pages 425-462, November.
    13. Simplice A. Asongu & Joseph Nnanna & Vanessa S. Tchamyou, 2020. "Finance, Institutions and Private Investment in Africa," Working Papers of the African Governance and Development Institute. 20/080, African Governance and Development Institute..
    14. Kurul, Zühal, 2017. "Nonlinear relationship between institutional factors and FDI flows: Dynamic panel threshold analysis," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 148-160.
    15. Nataliia Osina, 2021. "Global governance and gross capital flows dynamics," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(3), pages 463-493, August.
    16. Tag, Mehmet Nasih & Degirmen, Suleyman, 2022. "Economic freedom and foreign direct investment: Are they related?," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 737-752.
    17. Elheddad, Mohamed M., 2018. "What determines FDI inflow to MENA countries? Empirical study on Gulf countries: Sectoral level analysis," Research in International Business and Finance, Elsevier, vol. 44(C), pages 332-339.
    18. Sèna Kimm Gnangnon, 2022. "Does poverty deter foreign direct investment flows to developing countries?," International Journal of Economic Policy Studies, Springer, vol. 16(1), pages 297-330, February.
    19. Omer Ali Ibrahim & Sonal Devesh & Mughees Shaukat, 2022. "Institutional determinants of FDI in Oman: Causality analysis framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4183-4195, October.
    20. John Anyanwu, 2011. "Working Paper 136 - Determinants of Foreign Direct Investment Inflows to Africa, 1980-2007," Working Paper Series 327, African Development Bank.

    More about this item

    Keywords

    governance; FDI; GMM; African countries;
    All these keywords.

    JEL classification:

    • H0 - Public Economics - - General

    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:pra:mprapa:95944. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.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.