The Role of Institutional Quality in FDI Inflows in Sub-Saharan Africa

Mulugeta Kahsai (), Yohannes Hailu, Chali Nondo and Peter Schaeffer
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Mulugeta Kahsai: Regional Research Institute, West Virginia University
Yohannes Hailu: Michigan State University

Working Papers from Regional Research Institute, West Virginia University

Abstract: During the period 2000 to 2008, Africa’s collective GDP grew at an annual rate of 4.9 percent. Even though previous studies argue that strengthened and improved institutional quality is key determinant for attracting foreign direct investment to Africa, we find no evidence to that effect. Using a panel data for 45 Sub-Saharan African countries (SSH), we estimate the role of institutional quality (governance) in attracting FDI inflow during the 1996-2007 period. After controlling for country and time specific effects and the economic environment of the host country, we find no significant evidence of the impact of institutional quality on FDI inflow in our analysis. This finding may suggest that FDI inflow to SSH is potentially motivated by the abundance of raw materials and natural resources than good governance.

Keywords: institutional quality; governance; economic growth; FDI; SSH countries (search for similar items in EconPapers)
JEL-codes: F21 O43 O57 P45 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2011-03
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Persistent link: https://EconPapers.repec.org/RePEc:rri:wpaper:2011wp03

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