The Socioeconomic determinants of foreign capital inflows in selected Sub-Saharan African Countries

Noel Nthangu, Mulatu Zerihun and Mushoni Bulagi
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Noel Nthangu: Tshwane University of Technology
Mulatu Zerihun: Tshwane University of Technology
Mushoni Bulagi: Tshwane University of Technology

International Journal of Business Ecosystem & Strategy (2687-2293), 2025, vol. 7, issue 2, 307-318

Abstract: Foreign capital inflows (FCI) are essential for economic growth in developing countries. This study examines the socioeconomic factors affecting FCI in 31 Sub-Saharan African (SSA) countries, utilizing panel data from 1985 to 2019 and employing the System GMM dynamic modeling approach. The findings indicate that when foreign direct investment (FDI) is treated as an endogenous variable, real interest rate (RIR), life expectancy (LEX), GDP growth rate, and food security (foodsec) have significant positive impacts. Conversely, the real exchange rate (RER) and inflation (INF) negatively correlate with FDI. Human capital investment is not statistically significant while the relationship between lagged FDI and current FDI is positive but nonsignificant. When foreign portfolio investment (FPI) is considered an endogenous variable, only food security exhibits a positive and statistically significant factor, suggesting that food security can enhance FPI flows. The study recommends that SSA countries aiming to attract more FCI should focus on improving healthcare, food security, and education. It is also suggested that countries should develop highly skilled R&D employees, public and private scientific research institutions, and industrial concentration in a country because they fundamentally drive the development and success of foreign capital flow levels. Central banks should also implement effective strategies to optimize capital flows by advancing financial institutions. Key Words:Foreign capital inflows, System GMM, Sub-Saharan African countries

Date: 2025
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