Episode of Foreign Direct Investment Reversal—The Role of Macroeconomic Fundamentals in Sub-Saharan Africa

Adewale Rafiu Aregbeshola () and Ibrahim Ayoade Adekunle ()
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Adewale Rafiu Aregbeshola: University of South Africa
Ibrahim Ayoade Adekunle: University of South Africa

Journal of Industry, Competition and Trade, 2025, vol. 25, issue 1, No 12, 25 pages

Abstract: Abstract This study investigates the macroeconomic determinants of divestment, shedding light on the role of macroeconomic fundamentals. The results reveal that past divestment decisions impact current actions, highlighting the role of historical patterns. Furthermore, higher inflation rates are found to encourage divestment, likely due to risk aversion in volatile markets, in the same way as foreign interest rates. Additionally, anticipated currency depreciation drives divestment as firms seek to avoid associated consequential financial exposures. On the contrary, higher domestic interest rates are found to temper divestment, while economic growth and political stability show muted effects. Therefore, the study suggests that macroeconomic stability plays a crucial role in mitigating divestment, emphasizing the importance of stable economic conditions in reducing the need for firms to divest.

Keywords: Foreign direct investment (FDI); Divestment; Economic development; Sub-Saharan Africa (SSA); Capital flight; System GMM; Investment flows (search for similar items in EconPapers)
JEL-codes: C33 F21 F23 O4 O55 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10842-025-00447-8

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