Infrastructure Quality and FDI Inflows: Evidence from the Arrival of High-Speed Internet in Africa

Justice Tei Mensah and Nouhoum-000531164 Traore

No 9946, Policy Research Working Paper Series from The World Bank

Abstract: Does ambient infrastructural quality affect foreign direct investment (FDI) in developing countries This paper investigates how the arrival of high-speed Internet in Africa triggered FDI to the region. It also explores the role of complementary infrastructure, such as access to electricity and road connectivity, in amplifying the impact of Internet connectivity on investment. The identification strategy exploits plausibly exogenous variations in access to high-speed Internet induced by the staggered arrival of submarine fiber-optic Internet cables and spatial variations in terrestrial fiber cable networks across locations on the continent. Findings from the paper show that access to high-speed Internet induces FDI, particularly in the service sector, with the finance, technology, retail and health services subsectors as the main beneficiaries. Access to (hard) infrastructure such as electricity and roads, amplifies the impact of Internet connectivity on FDI, thus highlighting the role of complementarities in the impact of infrastructure. Further, the results suggest that improvement in quality of governance, and increased performance of incumbent firms are plausible mechanisms.

Keywords: Energy Policies & Economics; Telecommunications Infrastructure; Financial Sector Policy; International Trade and Trade Rules; Investment and Investment Climate (search for similar items in EconPapers)
Date: 2022-02-23
New Economics Papers: this item is included in nep-fdg, nep-ict and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:9946

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