Does the presence of democratic traits enhance Africa’s appeal for foreign direct investment?

Kazeem Bello Ajide ()
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Kazeem Bello Ajide: University of Lagos

Economic Change and Restructuring, 2024, vol. 57, issue 6, No 72, 43 pages

Abstract: Abstract This study examines the relationship between democracy and foreign direct investment (FDI) in 40 African nations using a two-step generalized method of moments (GMM) analysis. It explores five varieties of democracy and fifteen democratic traits. The findings reveal that egalitarian and deliberative democracies significantly attract FDI, with deliberative democracy having a particularly strong effect. Unlike egalitarian and deliberative democracies, participative democracy has a reducing impact on FDI. Similarly, nine democratic traits were found to significantly attract FDI. Economic factors like per capita GDP and natural resource rents showed mixed effects on FDI inflows, suggesting that the quality of democratic governance is crucial. Policy implications include strengthening democratic institutions, improving legal frameworks, ensuring fair elections, and enhancing government accountability to create a favorable investment climate. Policymakers are encouraged to focus on these areas to boost FDI and promote economic growth and development across the continent.

Keywords: Democracy; Foreign direct investment; Panel data analysis; Two-step GMM; Africa (search for similar items in EconPapers)
JEL-codes: C51 F36 P12 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10644-024-09820-9

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