Does Economic Freedom Improve FDI Inflows in Sub-Saharan Africa?

Ibrahima Dia () and Henri Atangana Ondoa ()
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Ibrahima Dia: University of YaoundeII, Postal: Pan-African University, Institute of Governance, Humanities and Social Sciences, Cameroon
Henri Atangana Ondoa: University of Yaounde II, Cameroon, Postal: University of Yaounde II - Soa and Centre for Studies and, Research in Economics and Management, Yaounde II - Soa, Cameroon

Journal of Economic Integration, 2023, vol. 38, issue 3, 383-410

Abstract: The objective of this study is to investigate the effect of economic freedom on foreign direct investment (FDI) in Sub-Saharan Africa (SSA). To this end, we employed a panel data analysis across 41 countries over the period 2000-2020. We used a two-stage least squares (2SLS) estimation method to address potential endogeneity issues. We found that economic freedom plays a crucial role in enhancing FDI inflows in SSA. Specifically, the results suggest that certain dimensions of economic freedom, such as the size of government and the legal system and property rights. Have a positive effect on FDI inflows in SSA. Conversely, components or dimensions like sound money and regulation have a negative impact. Freedom to trade has a positive sign on FDI. Regardless, these effects are statistically insignificant. Based on these outcomes, SSA countries should prioritize consolidating public spending on infrastructure development and enhancing the quality of investments in human capital formation. Additionally, strengthening the legal framework by ensuring the rule of law and a functional justice system that effectively safeguards the rights of investors is also necessary.

Keywords: Economic freedom; FDI; Sub-Saharan Africa (search for similar items in EconPapers)
JEL-codes: C82 F21 F23 O43 O55 P16 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0880

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