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On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different?

24 Pages Posted: 11 Sep 2001  

Elizabeth Asiedu

University of Kansas - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 2001

Abstract

This paper analyzes the determinants of Foreign Direct Investment (FDI) to developing countries and examines why Sub-Saharan Africa (SSA) has been relatively unsuccessful in attracting FDI despite policy reform. The results indicate that the factors that drive FDI have a differential impact on FDI flows to SSA. Specifically, infrastructure development and a higher return on capital promote FDI to non-SSA countries. In contrast these factors have no effect on FDI to SSA. Openness to trade promotes FDI to both SSA and non-SSA countries, however, the marginal benefit from increased openness is less for SSA-suggesting that trade liberalization will generate more FDI to non-SSA countries than SSA countries. Another important finding is that there is an "adverse regional effect" for SSA: a country in SSA will receive less FDI by virtue of its geographical location. These results suggest that Africa is different!

Keywords: Africa, Foreign Direct Investment, Developing Countries

JEL Classification: F23, O55, G32

Suggested Citation

Asiedu, Elizabeth, On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different? (July 2001). Available at SSRN: https://ssrn.com/abstract=280062 or http://dx.doi.org/10.2139/ssrn.280062

Elizabeth Asiedu (Contact Author)

University of Kansas - Department of Economics ( email )

1300 Sunnyside Drive
Lawrence, KS 66045-7585
United States
785-864-3501 (Phone)
785-864-5270 (Fax)

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