Exploring Extrinsic Home Country Factors Motivating the Flow of Foreign Direct Investment: Evidence From the Central African Economic & Monetary Community Region

Abstract

This study identifies and gauges the extrinsic national-level drivers of foreign direct investment (FDI) flows into and out of the Central African Economic & Monetary Community (CEMAC) region. Drawing on the literature that simultaneously explains the reinforcing loop between FDI inflow/outflow and the broader literature on FDI, this study identifies macro factors that motivate the investment decisions of multinational enterprises. Based on factor Analysis, five decision pillars were identified. Using a fixed effect panel model with a backward stepwise procedure, the findings confirm a reinforcing link between the initial level of FDI inflow/outflow and the current pace of FDI flows. In addition, we found that inbound FDI location decision in CEMAC and Sub-Saharan Africa is strongly influenced by good governance, improved welfare, and efficient communication infrastructure. Additionally, the prior levels of FDI inflow strongly influence the outflow of investment from domestic investors.