In summary, the empirical findings show that financial development, balance of payment, trade openness, domestic savings, inflation and economic growth are the main determinants of FDI inflows to non-landlocked countries of Africa excluding the Lusophone countries. On a comparative basis between the Arabophones and Francophones countries, the result shows that the financial development, balance of payment, and trade openness are the main determinants of the FDI inflows to both regions identified with linguistic approach. However, infrastructure development, domestic investment and short-term infrastructure development are also found to be important additional determinants of FDI inflows to Francophones countries. Although the contemporaneous domestic investment, infrastructure development and domestic savings did not have statistical significant on FDI inflows to Arabophones countries, these variables were found to be critical determinants of FDI to Arabophones in the long-run and statistically significant.
Conclusion
This paper assesses the effect of some determinants of foreign direct investment (FDI) inflows of non-landlocked Africa countries using a linguistic approach. It covers the period from 1980 to 2010 and employs an unbalanced panel dynamic ordinary least square method of analysis. A theoretical review is first undertaken to elucidate the relationship between the selected macroeconomic variables used in the study and foreign direct investment inflows. The inclusion of the FDI"s determinant variables in the model was based on the push and pull factors as well as some macroeconomics variables that investors use as a yardstick in measuring profit destination for investment.
The contemporaneous trade openness was found to have positive significant to foreign direct investment inflows to Arabophones, Francophones and non-landlocked countries excluding Lusophone countries. Infrastructure development has a negative effect on FDI inflows to Francophones countries and the same effect on FDI inflows to Arabophones in the long-run.
The result shows that economic growth and inflation have a positive effect on FDI inflows to Arabophones and Francophones countries in the models that captured them as dummies. However, an FDI inflow decreases to Francophones as a result of an increase in the level of financial development but increases to Arabophones under the same condition. It implies that FDI investors attracted to Arabophones may be associated with market seeking investors while the investors attracted to Francophone were both the resource seeking and nonmarket seeking investors. Consequently, FDI investors in non-landlocked Africa countries excluding the Lusophone are market seeking investors in general. This inclusion was based on effect financial development, balance of payment and trade openness effect on FDI inflows to the recipient (non-landlocked Africa countries).
The paper recommends that policy makers in the Francophone countries should adapt promotional policies to attract some types of foreign direct investment which are willing to convert the primary resource to finished product and regulate others. Policies should be aimed at putting in place an ideal model based on the national goal of the country to screen foreign direct investment applications so as to ascertain their productivity level. The paper strongly recommends that policies aimed at encouraging the foreign investors to reduce their level of profit expatriation. This can be done by providing an efficient financial system, investment more on infrastructure development and maintain a stable inflation rate in these regions.
The study has shown that Arabophones members except Mauritania countries are part of the northern Africa, which is the highest recipient of FDI inflows in Africa to date (UNCTAD, 2010). This performance can be deduced from the effect of contemporaneous financial development and long-run domestic investment on foreign direct investment inflows to Arabophones and it is consistent to theory. On this remark, the paper recommends that although contemporaneous domestic investment has a positive effect on FDI inflows to Francophone, the member countries should retrospect various polices adopted by Arabophones and incorporate that in their future policy adaptation where applicable. Its recommendation was also based on the result that language was not a significant determinant of FDI in non-landlocked Africa countries excluding the Lusophone member states.
The foremost constraint was the problem of unavailability of some important variables from the selected countries which were detrimental to FDI inflows to the non-landlocked countries.
Additional limitations are insufficient funds which have restricted the chance of directly assessing the data from the individual country database and the delinquent associated with using different sources of secondary data. This problem may result in either overestimation or underestimation of the variables used in the model estimation. The current paper has made a substantial contribution to the literature by using a panel rather than the commonly used cross-country studies. However, future studies should focus more comparative analysis including both linguistic and directional approaches, more importantly, a rigorous comparative analysis of a cross-sectional study of expectation and motives of foreign direct investors and the recipients in Africa.
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Autor:
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[1] FDI is an investment made to get hold of a long-term management interest (at least 10 percent of voting stock) in a business enterprise operating in a country other than that of the investor’s country of residency (World Bank, 1996). FDI may take the form of either “Greenfield” investment or merger and acquisition (M&A), and the latter entails, the acquisition of existing investment rather than new investment. It includes not only M&A and new investment, but also reinvested earnings and loans and similar capital transfer between parent companies and their affiliates (Adeolu, 2007).
[2] A first generation of models has analyzed the properties of panel-based unit root tests under the assumption that the data is independent and identically distributed (i.i.d.) across individuals.
[3] If t- statistic is significant which has a corresponding p-values less than 1% as represent with one asterisk (*) and p-value less than 5% as represented with two asterisk (**) . It implies that t-statistic is significant and the conclusion is that null hypothesis is rejected or panel data has no unit root. Otherwise if t-statistic does not have any asterisk implies that it is not significant then conclusion is that do not reject the null hypothesis or panel data has unit root
[4] The rule of thumb stipulates that if the correlation is approximately to 0.9 and it is likely that multicollinearity is present between the variables in question. It also implies that if the variables are of very important, it then means that two separate models have to be estimated incorporating the variable one after the other. That is to capture their effect on the dependent variables otherwise drop one of the variables.
[5] Hausman diagnostic test was employed to determine the proper specification of the model. It is of paramount importance to know whether the model is to be specified under fixed effect estimate or random effect estimation and as well to solve the endogeneity problems amongst the explanatory variables. The test statistic of the Hausman test is asymptotically distributed as chi-square such that if the Hausman test statistic is large and significant, you reject the null hypothesis of random effect specification and specified a fixed effect estimate. The null hypothesis is tested to find the existence of correlation between the stochastic error term and explanatory variables. If the correlation does not exist, implied that the probability value associated to the test was insignificant, then do not reject the null hypothesis, then the model will be specified using random effect estimation, otherwise the proper estimate is fixed effect estimate.
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