TITLE:
Determinants of Foreign Direct Investment: A Comparative Study between Central and East Africa
AUTHORS:
Joseph Aksanti Bahati, Mary Lucia Mbithi
KEYWORDS:
Foreign Direct Investment, Central Africa, East Africa
JOURNAL NAME:
Open Journal of Social Sciences,
Vol.10 No.6,
June
29,
2022
ABSTRACT: In the recent decades, East African region has been
attracting more inflows of Foreign Direct
Investment (FDI) than Central Africa, while the trend was different for
the period before 1990. This study aimed at identifying factors that determine FDI attraction in the two regions
using a panel data of six countries (three in Central Africa and other
three in East Africa) over the year 1990-2018. We applied the Panel
Autoregressive Distributed Lag (P-ARDL) model based on the Pooled Mean Group
(PMG) estimation to capture short and long-run relationships amongst variables.
Results indicated that in the long-run, infrastructure quality, trade openness
and market size explain the attraction of FDI inflows in both Central and East
Africa. A comparison of the two regions shows a sharp contrast of factors that
attract FDI. While trade openness and natural resources endowment are key
factors for Central Africa, infrastructure
quality and market size are critical in East Africa. However, resource
curse hypothesis has been found in Central Africa since the increase in
resource rents decreases the attraction of FDI inflows. Therefore, policies
which promote cooperation among countries by increasing the levels of trade,
reduce the costs of doing business and invest in infrastructures should be
implemented in the two regions.