Institutional environment, foreign direct investment and total investment in six selected low income and lower middle income Sub Sahara countries

• Main Author: Zangina, Suleiman
• Format: Thesis
• Language: English; English
• Published: 2020
• Subjects: HB Economic Theory
• Online Access: https://etd.uum.edu.my/10344/1/depositpermission_s902808.pdf; https://etd.uum.edu.my/10344/2/s902808_01.pdf; https://etd.uum.edu.my/10344/

The Sub-Sahara African (SSA) countries have been unable to attract the desired foreign direct investment (FDI) and meet their total investment requirements despite the substantial increase in global FDI in the last few decades. This situation led to a renewed focus on the role of institutions in attracting FDI inflow to the region. The objectives of this study are to examine the relationships between political stability (PST), control of corruption (COC), rule of law (ROL) and ease of doing business (EDB) with FDI and total investment (TINV) in six selected SSA countries comprising, Ethiopia, Tanzania, Senegal, Nigeria, Congo Republic and Sudan. Using data from the year 1996 and 2004 to 2017 for panel analysis and from the year 1984 to 2017 for time series analysis, this study employed four econometric techniques. The Panel Vector Autoregression results show that PST has a positive significant relationship with FDI inflow, whereas ROL and EDB have an insignificant relationship with FDI. The Non-Linear Autoregressive Distributed Lag results reveal that corruption control has an asymmetric relationship with FDI inflow in all the six countries. A positive change in corruption control has a positive effect on FDI inflow in the long run in all the countries except for Tanzania, whereas a negative change in corruption control has a negative impact on FDI inflow in Tanzania and Senegal only. The Pooled Mean Group panel results indicate that PST, COC and EDB have a positive significant relationship with TINV in the long run. The Toda-Yamamoto panel causality results prove that PST and ROL unidirectionally cause FDI, while EDB and FDI have bidirectional causality. Consequently, the study recommends policies to reform institutional environment in order to improve political stability and strengthen corruption control, rule of law and ease of doing business to attract FDI inflow and increase total investment in the SSA countries.