Governance and Foreign Direct Investment in Developing Countries

Case of African Countries 1985-2015

Abstract

The main objective of this work is to study the role of governance indicators as determinants of FDI in African countries. It is in this sense that we conducted an analysis of panel data from 44 African countries over a 31-year period (1985-2015) using the generalized least squares method (GLSM).

Our estimates show the following: (i) market size (GDP, current US$) has a negative impact on FDI to Africa, (ii) openness to trade has a positive impact on FDI flows, (iii) infrastructure (telephone lines (per 100 persons) have a negative effect on FDI flows to African countries, (iv) official exchange rate (local currency units per US$), average for the period) attracts FDI flows to Africa, (v) the rule of law and the functioning of the state attract ideas to African countries, (vi) the fight against corruption, the quality of regulation and political stability negatively affect ideas in Africa, (viii) the current account balance (% of GDP) positively affects the entry of ideas in Africa.