Microeconomic Consequences and Macroeconomic Causes of Foreign Direct Investment in Southern African Economies

34 Pages Posted: 20 Apr 2016

See all articles by Daniel Lederman

Daniel Lederman

World Bank - Latin America and Caribbean Region

Taye Mengistae

World Bank

Lixin Colin Xu

World Bank - Development Research Group (DECRG)

Date Written: September 1, 2010

Abstract

The causes and consequences of foreign direct investment (FDI) in developing countries remains a subject of debate among researchers and policymakers alike. The authors use international data and a new micro-data set of firms in thirteen Southern African Developing Countries (SADCs) to investigate the benefits and determinants of FDI in this region. FDI appears to have facilitated local development in the SADC region. Foreign firms tend to perform better than domestic firms, tend to be larger, are located in richer and better-governed countries and in countries with more competitive financial intermediaries, and they are more likely to export than domestic firms. They also exhibit positive spillover effects to domestic firms. Relying on a standard model to predict the country-level FDI inflows per capita, the authors find that SADC is attracting their expected level of FDI inflows, at least relative to its income level, human capital, demographic structure, institutions, and economic track record. There are some differences between SADC and the rest of the world in FDI behavior: in SADC, the income level is less important and openness more so. The authors use two comparison groups to compare with SADC to shed light on why other regions have attracted more FDI per capita than SADC. The factors that explain SADC?s low FDI inflows are economic fundamentals (e.g., previous growth rates, average income, phone density, and the adult share of population).

Keywords: Emerging Markets, Economic Theory & Research, Investment and Investment Climate, Foreign Direct Investment, Debt Markets

Suggested Citation

Lederman, Daniel and Mengistae, Taye Alemu and Xu, Lixin Colin, Microeconomic Consequences and Macroeconomic Causes of Foreign Direct Investment in Southern African Economies (September 1, 2010). World Bank Policy Research Working Paper No. 5416, Available at SSRN: https://ssrn.com/abstract=1674802

Daniel Lederman (Contact Author)

World Bank - Latin America and Caribbean Region ( email )

1818 H Street NW
Washington, DC 20433
United States

HOME PAGE: http://sites.google.com/site/danielledermanworldbank/

Taye Alemu Mengistae

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Lixin Colin Xu

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
MC 3-427
Washington, DC 20433
United States
202-473-4664 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/cxu

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