Foreign Direct Investment Drivers, Is Sub-Saharan Africa, a different case? Using the Cointegration Approach

Isaiah Oino

Abstract


The growth of the economy is fundamental to economic and social well-being. Factors that can be attributed to economic growth include foreign direct investment. Using the Cointegration approach, data from 1991 to 2015 from three major economies in sub-Saharan Africa that represent East Africa, SADc and Eco was regional groupings is used to analyze the major determinants of foreign direct investment. The study only included countries with complete data. The results indicate that countries with well-developed infrastructure are likely to attract foreign investors. Likewise, a higher return on investment is significant in influencing foreign direct investment. Confirming previous studies in developed economics, the results indicate that openness to trade is significant in attracting foreign capital. The research demonstrates the urgent need to improve infrastructure, streamline red tape and reduce the cost of operations, including taxation.

Keywords: FDI; sub-Saharan Africa; growth; infrastructure; investment

Subject classification codes: EO3.


Full Text:

PDF

References


Abadir, Karim M and Taylor, A. M. (1999), “On the Definitions of Co-integration" Journal of Time Series Analysis, 20(2).

Acemoglu, D. (2005). "Institutions as a fundamental cause of long-run growth." Handbook of economic growth, vol: pp. 385-472.

Africa Economic Outlook (2014). Global Value Chains and Africa’s Industrialisation. Available online: file:///C:/Users/isaiah/Downloads/AEO2014_EN%20(1).pdf accessed 01/12/2016

Alexeev, M and Conrad, R. 2009. "The Elusive Curse of Oil," Review of Economics and Statistics, forthcoming.

Alfaro, L. (2003). Foreign Direct Investment and Growth: Does the Sector Matter? Harvard Business School, Boston, MA, mimeo.

Alguacil, M. Cuadros, A. and V. Orts (2002). Foreign Direct Investment, Exports and Domestic Performance in Mexico: a Causality Analysis. Economics Letters, vol.77:pp.371-76.

Ancharaz, V. D. (2003), "Determinants of Trade Policy Reform in sub-Saharan Africa." Journal of African Economies, Vol.12(3): pp. 417-443.

Balasubramanyam, V.N., M.A. Salisu and D. Sapsford (1996). Foreign Direct Investment and Growth in EP and IS Countries. Economic Journal, Vol. 106: pp. 92–105.

Benassy-Quere, A., Fontagne L., Lahreche-Revil A. (2001) “Exchange-Rate Strategies in the Competition for Attracting Foreign Direct Investment”, Journal of the Japanese and International Economies, vol.15: pp.178-198.

Brandolin, A. and Atkinson (2003). Income Inequality in OECD Countries: Data and Explanations. CES ifo. Economic Studies, Vol. 49(4):pp.479-514, Munich

Brunnschweiler, C. and E. Bulte (2008). The resource curse revisited and revised: a tale of paradoxes and red herrings, Journal of Environmental Economics and Management, vol. 55(3):pp.248-264.

Blomstrom, M., Lipsey, R. E., & Zejan, M. (1994). What explains developing country growth? In W. J. Baumol (Ed.), Convergence of Productivity: Cross-National Studies and Historical Evidence (9th ed.). New York: Oxford University Press, Incorporated.

Carkovic, M., and R Levine, 2005. “Does Foreign Direct Investment Accelerate Economic Growth?” In: Moran, T. H., E. M. Graham and M. Blomström. Does Foreign Direct Investment Promote Development? Institute of International Economics, Washington DC.

Cavalcanti, Tiago V. de V., Mohaddes, Kamiar and Raissi, Mehdi (2011), ‗Growth, Development and Natural Resources: New Evidence Using a Heterogeneous Panel Analysis‘, The Quarterly Review of Economics and Finance, vol.51:pp.305-18.

Cuadros, A, V. Orts, and Alguacil M. (2004). Openness and Growth: Re-examining Foreign Direct Investment, Trade and Output Linkages in Latin America. The Journal of Development Studies, vol. 40:pp.167-192.

Demekas, D. G., H., Elina R and Yi Wu (2007) Foreign direct investment in European transition economies The role of policies, Journal of Comparative Economics, vol. 35: pp. 369 386.

Durham, B., 2004, “Absorptive capacity and the effects of FDI and equity foreign portfolio investment on economic growth,” European Economic Review, vol. 48:pp.285-306.

Dickey, D. A., Jansen, D. W. and Thornton, D. C. (1991), “A Primer on Cointegration with An Application to Money and Income”, Review Federal Reserve Bank of ST. Louis, 73.

Easterly, W. (2005), “What Did Structural Adjustment Adjust? The Association of Policies and Growth with Repeated IMF and World Bank Adjustment Loans”, Journal of Development Economics, February,vol. 76 (1): pp. 1-22.

Engle, R.F., and C.W.J. Granger (1987). Cointegration and Error Correction: Representation, Estimation and Testing. Econometrica, vol. 55: pp. 277-304.

Engle, R. F. and Yoo, B.S., (1987), “Forecasting and Testing in Cointegrated Systems”, Journal of Econometrics, vol.35: pp. 143-59.

Fisher, S. (1993). The role of macroeconomic factors in growth, Journal of Monetary Economics, vol. 32 (3): pp. 485-512.

Görg, H., and Greenaway, D., (2004), Much ado about nothing? Do domestic firms really benefit from foreign direct investment?, World Bank Research Observer 19:pp.171-197.

Granger, C.W.J. (1981). Some Properties of Time Series Data and their Use in Econometric Model Specification. Journal of Econometrics, vol. 16: pp.121-130.

Herzer, D., Klasen, S., Nowak-Lehmann D., F., 2008. In search of FDI-led growth in developing countries. The way forward. Economic Modelling, vol 25:pp. 793-810.

Jallab, M.S., Gbakou, P.B. and Sandretto, R. (2008). Foreign Direct Investment, Macroeconomic Instability and Economic Growth in MENA Countries. CNRS Working Paper, 17, Centre National de la Recherche Scientifique.

Johansen Soren. (1988), “Statistical analysis of co-integration vectors”, Journal of Economic Dynamics and Control, North Holland, pp.231-254

Jordaan, J. A. (2005), Determinants of FDI-Induced Externalities: New Empirical Evidence for Mexican Manufacturing Industries, World Development, vol 33(12): pp. 2103-2118.

Karl, T.L. (1997) The Paradox of Plenty: Oil Booms and Petro-States, Berkeley, Los Angeles and London: California University Press.

Kaufmann, D. 2002. “Governance Crossroads.” The Global Competitiveness Report 2002–2003. World Economic Forum. New York: Oxford University Press

Kinoshita, Y. and Lu, C., (2006). On the role of Absorptive Capacity: FDI Matters to Growth. William Davidson Institute Working Paper, no 845.

Kiyota, K., & Urata, S. (2004). Exchange rate, exchange rate volatility and foreign direct investment. World Economy, vol 27(10):pp. 1501-1536.

Im, K., M.H. Pesaran and Y. Shin (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, vol 115 (1): pp. 53-74.

Li, X., and Liu, X., 2005, “Foreign Direct Investment and Economic Growth: An Increasingly Endogenous Relationship,” World Development, vol, 33(3):pp. 393-407.

Lipsey, R. E. 2001. Foreign Direct Investors in Three Financial Crises. National Bureau of Economic Research Working paper 8084. Cambridge, MA: National Bureau of Economic Research.

Marinova, S. T., & Marinov, M. A. (2003). Foreign Direct Investment in Central and Eastern Europe. Hampshire, England: ASHGATE Publishing Limited.

Mottaleb, K. A and Kalirajan, K. (2010)Determinants of Foreign Direct Investment in Developing Countries, A Comparative Analysis. The Journal of Applied Economic Research, vol. 4(4): pp. 369-404.

Patrick, E, E and Prudence Attah-Obeng (2013). Impact of macroeconomic factors on foreign direct investment in Ghana. A cointegration analysis. European Scientific Journal, Vol. 9.

Pedroni, P. (1999). Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors. Oxford Bulletin of Economics and Statistics 61 (Supplement 1): 653-670.

Pesaran, M.H., Shin, Y., Smith, R.J., 2001. Bounds testing approaches to the analysis of level relationships, Journal of Applied Econometrics, vol 16, pp:289-326.

Sachs, J.D., and Warner, A.M., (2001), “The Curse of Natural Resources,” European Economic Review, vol 45, pp:827-38.

Satomi, K. (2007). Macro Determinants of FDI Inflows to Japan: An Analysis of Source Country Characteristic. Aston University.

Serge, N and Yaoxing, Y. (2010). The relationship between FDI, trade openness, and growth in Cote d' Ivoire. International journal of business and management , Vol. 5(7).

Solow, R. M. (1956), “A contribution to the Theory of Economic Growth”, Quarterly Journal of Economics, 65-94

Wang, J., Y. (1990), “Growth Technology Transfer and the Long-run Theory of International Capital movements”, Journal of International Economics, vol. 29, pp: 255-71

World Investment Report (2018) Investment and New Industrial Policies. Available on: https://unctad.org/en/PublicationsLibrary/wir2018_en.pdf accessed on 13/11/2018


Refbacks

  • There are currently no refbacks.


International Journal of Business and Economics is licensed under a Creative Commons Attribution 4.0 International License Based on a work at http://ijbe.ielas.org

Copyright © 2016-2020 International Journal of Business and Economics (IJBE)

ISSN (online) 2545-4137

Disclaimer: Articles on International Journal of Business and Economics (IJBE) have been previewed and authenticated by the Authors before sending for the publication. The Journal, Chief Editor and the editorial board are not entitled or liable to either justify or responsible for inaccurate and misleading data if any. It is the sole responsibility of the Author concerned.