ACCESSESS IN DETERMINING FORIGN DIRECT INVESTMENT: PANEL DATA ANALYSIS OF SUB-SAHARAN AFRICA COUNTRIES

Abstract

Accesses in Determining Foreign Direct Investment: Panel Data Analysis of Sub-Saharan Africa Countries FelekeTadesse More recently, due to the globalization process and the increasing roles of Multinational Corporation in economic development, many empirical literatures have been trying to take into account the effects of not only the classical factors: but also the various institutional issues which affect considerably the FDI flow in the host countries . So, the objective of this paper is to explore the major accesses to FDI flow to the Sub Saharan Africa countries by focusing on main institutional factors and other conventional variables in FD I flow to the region. For this purpose, we employed two panel model techniques: the fixed effect and dynamic panel model (the system GMM estimator of Arellano and Bover (1995) and Blundell and Bond(1998)) by utilizing the data of 32 SSA countries covering the period 1994-2010. Our findings reveal that among the institutional quality variables (regulatory quality), past level of inward FDI, market size, openness, natural resource availability, financial development if supported by regulatory quality are found to be important derivers of FDI flow to the region. Conversely measures in control of corruption, the existing rule of law, macroeconomic condition (i.e. inflation and exchange rate) and infrastructural situation are found to be insignificant for the region’s FDI flow. To increase FDI flow to the region policy makers (economic administers) of the region need to strive to improve and amend their policy regarding their institutions: rule of law, the way to control corruption, develop infrastructures, improve macroeconomic condition and should diversify and develop their economies