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Foreign aid and foreign direct investment in Sub-Sahara Africa: A panel data analysis

Author

Listed:
  • Kafayat Amusa
  • Nara Monkam
  • Nicola Viegi

Abstract

Funding constraints experienced by Sub-Saharan African (SSA) countries has led to reliance on foreign direct investment (FDI) and foreign aid as alternative sources of finance. Despite the importance of FDI for growth, SSA has failed to attract an increasing share of global FDI and at the same time faces volatile aid flows. This study examines the role of foreign aid in enhancing FDI inflows to 31 SSA countries for the period 1995 to 2012. Using panel data estimation techniques, the results suggest that productive infrastructure aid is complementary to FDI inflows and socio-economic infrastructure aid has no significant impact on FDI inflows. When resource (oil) motive of FDI is considered, the results indicate that productive and socio-economic infrastructure aid to oil-producing SSA countries results in less FDI inflows compared to non-oil producing SSA countries. Finally, the significance of sectoral aid analysis is highlighted by the finding of a complementary role of energy infrastructure aid to FDI inflows and an insignificant impact of transport infrastructure aid.
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Suggested Citation

  • Kafayat Amusa & Nara Monkam & Nicola Viegi, 2016. "Foreign aid and foreign direct investment in Sub-Sahara Africa: A panel data analysis," ERSA Working Paper Series 89, Economic Research Southern Africa.
    • Handle: RePEc:rza:ersawp:89
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    2. Blessing Magocha & Mokgadi Molope & Martin Palamuleni & Munyaradzi Saruchera, 2023. "The Interface between the State and NGOs in Delivering Health Services in Zimbabwe—A Case of the MSF ART Programme," IJERPH, MDPI, vol. 20(23), pages 1-18, December.
    3. Liao, Hongwei & Chi, Yedi & Zhang, Jiarui, 2020. "Impact of international development aid on FDI along the Belt and Road," China Economic Review, Elsevier, vol. 61(C).
    4. Kunofiwa Tsaurai, 2025. "Foreign Aid–Human Capital–Foreign Direct Investment in Upper-Middle-Income Economies," JRFM, MDPI, vol. 18(5), pages 1-15, May.
    5. Jeunghan Lee & Keuntae Cho, 2023. "Effects of Science, Technology, and Innovation Official Development Assistance on Foreign Direct Investment in Developing Countries," Sustainability, MDPI, vol. 15(16), pages 1-13, August.

    More about this item

    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F35 - International Economics - - International Finance - - - Foreign Aid

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