The Determinants of Foreign Direct Investment to Sub-Saharan African Countries

Emmanuel Bakou, Union College - Schenectady, NY

Abstract

This paper examines the determinants of foreign direct investment (FDI) flows into Sub-Saharan African countries. The flow of foreign direct investment into a country is important because it promotes economic development. For many decades, Sub-Saharan African economies have lagged behind more developed economies. As such, Sub-Saharan African countries can strongly benefit from increases in FDI inflows, given that this region has received a relatively smaller share of FDI than other regions. The objective of this paper will be to identify the factors that most significantly impact FDI inflows into Sub-Saharan African countries. I will be investigating the locational determinants of FDI for 44 Sub-Saharan African countries from the period of 2004 to 2017, using panel data, fixed effects and Least Squares (LS) estimation techniques. Within my empirical analysis, I will largely investigate the effect that external debt service has on FDI inflows. In order to guide my empirical analysis, I employ three frameworks. First, I expect to conclude that countries with strong market, resource and efficiency seeking determinants will receive larger FDI inflows. Secondly, FDI inflows will result in economic growth for recipient countries. Lastly, high levels of external debt service will cause FDI inflows to fall.