One Bad Turn Deserves Another: How Energy Production, Financial Instability, and Political Governance Crisis Sustain the Decline of FDI Inflows in the Central African Republic

Yapatake Kossele Thales Pacific () and Ngaba Mbai-Akem Gabriella Magalie
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Yapatake Kossele Thales Pacific: Central African Republic
Ngaba Mbai-Akem Gabriella Magalie: Institute of Governance, Humanities and Social Sciences (PAUGHSS)

Journal of the Knowledge Economy, 2023, vol. 14, issue 2, No 11, 853 pages

Abstract: Abstract Foreign direct investment (FDI) in many African countries has risen sharply over the past two decades. Yet, the rising trend has not been apparent in the Central African Republic. The purpose of this study is to examine the reasons for the declining FDI net inflows in the Central African Republic (CAR) considering the main issues such as energy production, financial instability, and political governance crisis with exports of goods and services as a control variable. This study used an autoregressive distributed lag model (ARDL) to check the long-run relationship among the engaged variables covering the period 1977–2007 and 1977–2016, as the time interval including the post-crisis period. The results show energy production, political governance crisis, and exports of goods and services have a positive effect on FDI inflows both in the short and long run before the financial crisis. Furthermore, we found that financial instability and the structural break effects have positive effect on FDI inflows both in the short and long run. However, the post-financial crisis period indicates that financial instability and the structural break effects have a negative effect on FDI both in the short and long run, while the political governance crisis has a positive effect on FDI in short run and negative effect on FDI inflows in the long run. Furthermore, we found that energy production has a positive and statistically significant effect on FDI inflows both in the short and long run. The global financial crisis impacts positively and significantly the FDI net inflows in the long run while in the short run, it has a negative and significant impact on FDI net inflows. The findings underscore the need to improve financial institutions, energy sector, and governance as well as encourage private sector development. Moreover, diversification is necessary to meet the sustainable growth requirements of the Central African Republic.

Keywords: FDI inflows; Energy production; Financial instability; Political governance crisis; Central African Republic (search for similar items in EconPapers)
JEL-codes: O1 O11 O21 O43 O55 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s13132-022-00891-5

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