Foreign Direct Investment: A Study of the African Determinants

Abstract

This thesis explores the determinants of foreign direct investment (FDI) to Sub- Saharan Africa (SSA) compared to other developing regions, with an emphasis on risk. Estimation results from cross-section regressions using OLS and panel regressions, comparing 2003-2017 to 1988-1997, indicate the following. (1) The determinants identified in the 1990’s no longer result in the best performing model in explaining the variation in FDI as % of GDP. (2) Africa is no longer in a less favorable position in attracting FDI compared to other developing regions. More importantly, an analysis on risk premium changes shows that (3) a reduction in the required risk premium related to SSA is consistent with the results in (2) and one explanation to why we observe changes. Hence, our results indicate that the required risk premium associated with investments in SSA has been lower for the last couple of decades than what it was previously.