Communications Networks and Foreign Direct Investment in Developing Countries

Abstract

It is widely accepted that investment is essential for the long-term economic growth of developing countries. There is some evidence that Foreign Direct Investment (FDI) in developing countries provides spill-over benefits through technology and skills transfer. Understanding the determinants of FDI inflows into developing countries is therefore an important policy objective. This paper shows that average FDI inflows into developing countries are greater in countries that have better telecommunications networks. In more recent years, this relationship can also be detected between FDI and mobile networks. The analysis has been refined to take account of countries' endowment of natural resources and the an attempt has been made to deal with the problem of endogeneity.

Keywords: Africa, capital flows, foreign direct investment, investment risk, developing

JEL Classification: F21, L43, L96, L41, O3