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The determinants of foreign direct investment in sub‐Saharan Africa: What role for governance?
Author(s) -
RodríguezPose Andrés,
Cols Gilles
Publication year - 2017
Publication title -
regional science policy and practice
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.342
H-Index - 8
ISSN - 1757-7802
DOI - 10.1111/rsp3.12093
Subject(s) - foreign direct investment , corporate governance , language change , commodity , quality (philosophy) , rule of law , international economics , business , accountability , distribution (mathematics) , order (exchange) , government (linguistics) , investment (military) , economics , development economics , politics , market economy , political science , macroeconomics , art , mathematical analysis , philosophy , linguistics , literature , mathematics , finance , epistemology , law
For the past quarter of a century, foreign direct investment (FDI) flows have grown exponentially across the world. Sub‐Saharan Africa has, however, lagged behind and only lured on average a mere 2 per cent of global FDI. The investment that the region attracts tends, moreover, to be concentrated in a number of commodity‐rich countries. Natural resources and the size of national markets have generally been considered as the main drivers of FDI. The quality of local institutions has, by contrast, attracted less attention. This paper uses institutional data for 22 countries in order to demonstrate that the quality of governance plays a far from negligible and enduring role in the distribution of FDI in sub‐Saharan Africa. It is shown that factors such as political stability, government effectiveness, lower corruption, voice and accountability, and the rule of law not only are more important determinants of FDI than the size of local markets, but also that their influence on the capacity of African countries to attract FDI is long‐lasting.