On the Determinants of Foreign Direct Investment to West African Countries: Does Political Risk Matter?

Adewale Samuel Hassan
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Adewale Samuel Hassan: University of Johannesburg

Chapter Chapter 10 in Economic Inclusion in Post-Independence Africa, 2023, pp 179-195 from Springer

Abstract: Abstract The drivers of FDI have been a subject of constant investigation in the literature over the years. However, the role of politics has not been adequately explored, especially in the context of West African countries. This study investigates whether political risk matters for FDI inflows to West African countries from 1986 to 2020. Panel regressions were conducted based on the dynamic common correlated effects (DCCE) and dynamic seemingly unrelated regression (DSUR). The estimates establish that improvement in the political rating scores of the West African countries enhances FDI inflows to the countries. Market potential, trade openness, and natural resources exploitation are also identified as important drivers of FDI. Furthermore, the Dumitrescu-Hurlin (D-H) panel causality test results reveal that GDP has a bidirectional causal relationship with FDI, natural resources, and infrastructure, while natural resources Granger causes FDI, political risk, trade openness, and infrastructure. The study posits that the countries should improve political risk rating through the existing political and economic unions and embed their natural resource exploitation in the sound institutional framework.

Keywords: FDI; Political risk; DCCE; DSUR; Natural resources; Market size; GDP (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:aaechp:978-3-031-31431-5_10

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DOI: 10.1007/978-3-031-31431-5_10

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