Does the quality of institutions matter for foreign investment concentration in Africa? Understanding the controversial role of international aid

Ludovic Feulefack Kemmanang and Jonas Juleo Dongmo Zamké

Review of Development Economics, 2022, vol. 26, issue 1, 354-374

Abstract: This article investigates how the quality of institutions shapes foreign direct investment (FDI) concentration and assesses the impact on African attractiveness, controlling the effect of bilateral aid. Based on data from 37 African countries over the period 2009–2018 and using the generalized method of moments, the paper finds that FDI concentration crowds out FDI inflows from countries other than the former colonizer, causing Africa to lose nearly three‐quarters of its potential. In contrast, investors from the old metropolis exhibit an accommodation effect on their former colonies' characteristics. Our study also finds that there is an inverse relationship between the quality of institutions and FDI concentration. Besides, bilateral aid from countries other than the former metropolis reduces FDI concentration, while bilateral aid from the former colonizer strengthens FDI concentration. Finally, the study shows that bilateral aid modulates the impact of the quality of institutions, such as aid from the former colonizer reduces the impact of the quality of institutions, while aid from other countries reinforces its marginal effect. Therefore, African countries should consider undertaking reforms to build institutions strong enough to improve their attractiveness and divest from the grip of international aid.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/rode.12825

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:rdevec:v:26:y:2022:i:1:p:354-374

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1363-6669

Access Statistics for this article

Review of Development Economics is currently edited by E. Kwan Choi

More articles in Review of Development Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().