Effect of institutional quality on the attractiveness of foreign direct investment in the Democratic Republic of Congo

Abstract

The objective of this paper is to analyze the effect of institutional quality on the attractiveness of foreign direct investment (FDI) in the Democratic Republic of Congo (DRC) over the period 1996-2020 (25 years). To examine this relationship, this paper uses Engel and Granger's (1987) two-stage algorithm, employing error-correction econometric analysis of a multiple regression. The results reveal that among the indicators of good governance (Kaufman et al., 1999), only the variables "government effectiveness", "political stability" and "voice and accountability" have a negative and significant influence on the attractiveness of FDI in the Congolese context. Thus, policy implications aimed at increasing the quality of institutions in the sense of decreasing institutional overheads, designing and implementing sound policies, promoting democracy, and reducing political instability and terrorism would contribute to the inflow of FDI volume to the DRC.

Key words: Institutional quality, Governance, Foreign Direct Investment.

JEL Classification: F21, G28, O16, O38

Paper type: Empirical research