Foreign Direct Investment and Host Country Industry Development: Insights from Africa

Abstract

Based upon African countries and their level of industry development, this study analyzes the impact of host country industry development (HCID) on the survival of FDI. The study consists of a dataset with 1146 observations of FDI in the African continent. Literature in institutional theory, FDI spillovers, and liability of foreignness have been reviewed and connected towards the analysis to form a theoretical framework. Thereafter, the hypotheses regarding the relationship between HCID and FDI survival, as well as the moderating effects of Job Creation, Capital Inflow, and Experience towards that underlying relationship are formulated, presented and discussed with the applied theories. The hypotheses are tested by applying the Cox proportional hazard regression while case studies will also be conducted to clarify the research context as well as the quantitative findings. The main findings from quantitative results suggest that HCID has a negative relationship with the survival of FDI in Africa. The paper has also found out that while Job Creation can help to weaken that negative relationship, a similar effect is not found in Capital Inflow and Experience of the focal FDI. On the other hand, the case study has showed that practitioners share the same thoughts with the hypotheses which are drawn from theories in the literature review. Keywords: FDI survival, FDI spillovers, host countries industry development, job creation, capital inflow, FDI experience, Africa