The machination of foreign direct investment flow to emerging markets – a focus on Africa

Abstract

Purpose The deterministic role of various macroeconomic fundamentals on the attractiveness of countries to inflow of FDI is well documented in literature. The role of market size, infrastructural development, inflation and exchange rates differential have been supported as determinants of FDI direction. However, no documented study has benefited from diverse measures of institutional adequacy as presented in this study. The paper aims to discuss these issues. Design/methodology/approach The paper adopts various econometric approaches that include descriptive statistics, fixed effects models, LM test of independence, feasible generalised least squares regression and SUR estimations. Findings This study unveils the specific impacts and explanatory power of each of the variables along country lines, and the author compares the results of some emerging markets in Asia, Eastern Europe, and South America to some selected countries in Africa. Using data set from various sources over a period of 44 years in a seemingly unrelated regression environment, this study suggests that poor technological capability, inadequate political system, weak productivity gains are major deterrents to the attractiveness of African countries to inflow of FDI. Research limitations/implications The major limitation of this study revolves around availability of usable data, which compels the researcher to limit the focus and the span of time series. Practical implications The study suggests the need to improve institutional quality in emerging economies, especially countries in Africa in order to enhance their attractiveness to FDI inflow. More importantly, the study found that low capital productivity gains hinder the attractiveness of African emerging markets to FDI inflow. Social implications To alleviate poverty, attraction of FDI is considered important, and the improvement of institutional functionality in that regard is found to be important. The need to augment technological improvement is considered very important and critical. Originality/value This serves to confirm that the article entitled “The Machination of Foreign Direct Investment Flow to Emerging Markets – A focus on Africa” is my own original work, envisaged to contribute to the debate about the role of macroeconomic fundamentals, especially capital productivity gains as determinants of a country’s attractiveness to inflow of foreign capital in academic literature. All the sources used and consulted have been fully acknowledged by a way of complete referencing. The author hereby agrees to the terms and conditions as stipulated by the publisher and the editorial board of this prestigious journal.