A Contribution to The Empirics of Foreign Direct Investment in Sub-Saharan Africa: Determinants, Impact and Structural Breaks.

Abstract

Purpose: The study is an investigation of the determinants of foreign direct investment (FDI) and its effect on growth in sub-Saharan Africa. Design/Methodology/Approach: A quantitative research design was employed. Based on data availability, 32 countries in sub-Saharan Africa were purposively selected. Furthermore, these countries have undergone economic transformations and come from all sub-regions of SSA, making them fairly representative of the sample. Annual secondary data from the World Development Indicators (WDI), covering the period 1990 to 2019, were utilised for the content analysis. Research Limitation: The study is limited to countries in sub-Saharan Africa, which may limit the generalizability of the findings to other regions. Findings: The results indicate that in the absence of structural breaks, external debt, trade openness and infrastructure determine the level of FDI. With the incorporation of structural beaks, all determinants except inflation accounted for FDI levels in the second regime (2001 to 2004), while only trade openness and infrastructure affected FDI levels in regimes 3 and 1, respectively. Based on Granger causality testing, FDI exhibits unidirectional causality with economic growth. Practical Implication: Sub-Saharan African countries that wish to increase FDI inflows should reduce their reliance on external debt and focus on infrastructure and trade, while paying close attention to structural changes in FDI-related policy formulation. Social Implication: Understanding the factors that drive FDI inflows in sub-Saharan Africa will help governments and policymakers in the region formulate policies to boost FDI and economic growth. Originality / Value: This study accounts for the important role of structural breaks in the impact and determinants of FDI in sub-Saharan Africa, a role that has been overlooked in the literature.