Open AccessFDI, Stock Market Development and Institutional Quality: An African Perspective
Author(s) -
Patricia Lindelwa Makoni
Publication year - 2021
Publication title -
international journal of financial research
Language(s) - English
Resource type - Journals
eISSN - 1923-4031
pISSN - 1923-4023
DOI - 10.5430/ijfr.v12n5p141
Subject(s) - expropriation , foreign direct investment , stock (firearms) , business , stock market , quality (philosophy) , panel data , international economics , random effects model , monetary economics , economics , market economy , macroeconomics , econometrics , mechanical engineering , paleontology , philosophy , epistemology , horse , biology , engineering , medicine , meta analysis
This paper empirically sought to establish the existence of relationships between foreign direct investment, stock market development and institutional quality, respectively. The study adopted a multiple regression analysis, using a panel of nine African countries between 2009 and 2016. Using the random effects model, we find that the relationship between foreign direct investment and stock market development is positive and statistically significant. On the other hand, institutional quality reflected a negative effect on FDI inflows, implying that countries with low quality institutions would struggle to attract inward FDI. The policy implications are that host countries’ policy makers should eliminate or reduce any practices that deter foreign direct investments, such as capital controls and risk of expropriation (institutions), while simultaneously improving the domestic financial infrastructure and related regulations.