Foreign direct investment in non-landlocked Africa countries

Abstract

This paper undertook a comparative static analysis of foreign direct investment (FDI) determinants on FDI inflows to Arabophones and Francophones countries in Africa. This paper used an unbalanced panel data on non-landlocked Africa member states excluding the Lusophone member states from 1980 to 2010. To accomplish this, Panel unit root test, Pedroni (Engle-Granger Based) Panel Co-integration Test, multi-collearity test and Hausman test were conducted before using a panel dynamic ordinary least square estimation under the fixed effect specification for the entire models. Contemporaneous trade openness, financial development, economic growth and short- term investment in infrastructural was positive determinants of FDI inflows to non-landlocked Africa countries excluding the Lusophone Africa. On the contrary, lagged of infrastructure development, lead of domestic savings and balance of payment was identified as part of FDI determinants to Arabophones member states, even though the effects were negative. Nevertheless, the result showed that language is not a significant factor for attracting FDI inflows. Finally, policies/strategies to improve the economic growth and trade openness should be put in place in order to attract more FDI inflows to non-landlocked Africa.

Key words: Foreign direct investment, non-landlocked, Arobophones and Francophones.

Introduction

Developing countries are ever more informed on the significant role of foreign direct investment (FDI[1]as an engine of growth in their economies. Theories have elicited that FDI can induce economic growth by providing essential capital and skills, participating in large projects and as well as being a vehicle for technology transfer. For many developing countries, FDI has been an essential mechanism that promotes industries, entailed the spirit of competition and in the long-run makes them have a potential comparative advantage over other economies (Addison et al, 2004; UNCTAD, 2003; Dunning & Hamdani, 1997).

Literatures have identified many determinants of FDI in an economy. These determinants effects differ from one economy or region to another. According to Calvo et al. (1993) study argued that, the total FDI inflows in a country are stirred largely by push factors, such as economic growth and return on investment in industrial countries. That is, the foreign investors" main objective is profit maximization. The implication is that investors will move to a new destination if the return on investment in that destination is promising. Apart from the FDI determinants associated with push factors, there are other determinants of FDI which are linked to pull factors. According to Collins (2002), the Pull factors enabled the investors to choose a profitable investment allocation among developing countries.

In addition to pull and push factors, foreign direct investor"s reason of investing in a particular economy might be related to their motives. For example, a natural-resource-seeking investor aims to exploit the natural resource endowments of that country. This investor will mostly channel funds to companies extracting oil (in Nigeria, and Cote d"Ivoire), gold (in Ghana) and diamond (in Botswana), etc. Other types of investor are: Market-seeking investors who aim at taking advantage of new markets in terms of their sizes and/or growths. Efficiency-seeking investors take advantage of special features such as the costs of labor, the skills of the labor force, and the quality and efficiency of infrastructure. Lastly, strategic-asset-seeking FDI investors situate at a place where they can take advantage of what is readily available in terms of research and development and other benefits.

Based on the empirical and theoretical identification of various FDI determinants work covering a wider range of countries and its effect on FDI to recipient economy, which might depend not only on local conditions and policies but also the linguistic approach cognition. Simply put, one question this paper postulated was whether the disparities in terms of language were a factor in attracting FDI inflows to Northern Africa. That is, whether the official language was a latent determinant instrumented for the economy in question to harvest benefits derived from FDI inflows.

In this paper, the author explores a comparative static analysis of FDI determinants effect on FDI inflows to Arabophones and Francophones countries in Africa. In order to do this, the author sourced data from UNCTAD"s and Africa Development indicator database. In total, the sample covered 12 African countries, among which five of were Arabophones countries, namely, Algeria, Egypt, Morocco, Tunisia and Mauritania while the rest, Gabon, Benin, Guinea, Madagascar, Senegal and Côte d'Ivoire belonged to Francophones countries. The paper adopted a dynamic ordinary least square (DOLS) method to achieve its entire objectives. The rest of the paper was organized as follows, Section two contained a comparative static analysis overview performances of FDI determinants in Arabophones and Francophone economy, while section three reviewed the theoretical and empirical literature from other related studies, from which the paper derive determinants of FDI having a potential impact on FDI inflows Arabophones and Francophones countries. The methodology, econometric specification and estimation strategy were presented in section four. Empirical results and their interpretations were discussed in section five, while section six summarized, and present policy discussion and made suggestions for further research.

Overview performances of fdi determinants in arabophones and francophone economy

Table1: Comparative Static Analysis

Sources: UNCTAD and WDI and the calculation were done by the author.

In table 1, both the Arabophones and Francophones member states on average were running balance of payment deficits from over the period of this empirical study. For example, between 1980 and 1990, the BOP deficits for Arabophones and Francophones were 6.02 percent and 6.51 percent of their gross domestic product respectively. But the deficit on average reduced to 0.88 percent between 1991 and 2000 and further to 0.74 percent from 2001 and 2010 for Arabophones member states economy. There were reductions on average in Francophone countries within the same periods but not as compared with Arabophones countries.

In both Arabophones and Francophone member states, their domestic savings increase but Arabophones domestic savings increases more than Francophone over the same periods. The financial development (FD) in Arabophones, were more than twice liberalized than in Francophone member states. For instance, it was 51.20 percent and 20.72 percent for Arabophones and Francophones in 1980-1990 respectively. The development of the financial system dropped a bit for both member states in 1991-2000 and picked up to 56.19 percent and 23.01 percent in 2001-2010 for Arabophones and Francophones respectively.

Furthermore, there is fairly level of trade openness for both Arabophones and Francophones member states, but Francophones countries were more open than Arabophones countries in 1980-1990 and 1991-2010. This is an evidence of adopting globalization in their various economies. The government participation in both member states were low and fairly stable in both economies. Domestic investments in Arabophones countries were slightly higher when compared to Francophones countries. Finally, the FDI inflows in both countries were approximately the same over three deciles observation.

In figure 1 below, FDI inflows in Arabophones were increased from 1980 to 1994, and dropped from 1994-1995 while over the same period FDI inflows to Francophones countries were fairly stable. The FDI inflows for both member states were increased from 2004 to 2006, and Arabophones attracts more than Francophones member states. From 2006 to 2008, FDI inflows to Arabophones countries were approximately stable but the increase of FDI inflows continued flowing to Francophones countries over the same period. Finally, after 2008, the FDI inflows to Arabophones declined.

Figure 1: FDI inflows in Arabophones and Francophone"s countries in Africa (1980-2010)

Source: Africa development Indicators various years

Literature review

3.1 Reviews of Theoretical Literature

There are a number of theories that have explained Foreign Direct Investment inflows (FDI) in Africa. FDI theories are mainly based on imperfect market conditions and imperfect capital market. Some of these theories consider the effect of non-economic factors on FDI while others explain the emergence of Multinational Corporations (MNCs) exclusively among developing countries. For instance, neo-classical economic theory assumes a free capital markets and diminishing returns. According to the theory, capital should flow from capital abundant countries (developed countries) to capital scarce countries (developing countries) until the marginal returns to capital in both countries are equal. Such flows can contribute immensely to closing domestic savings gap in developing countries (Page & Velde, 2004). Indeed, Mundell"s (1957) in the Heckscher-Ohlin theory of trade postulated that capital will move from rich countries to poor countries. The implication is that, it is more profitable to invest capital where it is scarce than where it is abundant. It holds on the assumption that there should be no outflows of FDI from developing countries.

In addition, FDI is associated to production as well as capital flows, which are influenced by other factors. From a conventional trade point of view, trade and FDI might be viewed as substitutes in absence of the influence of factors such as technology and firm-specific assets; otherwise they may be seen as complements (Markusen, 1984 & 1995). A notable example of firm-specific assets is brand names which are acquired via advertising or firm specific knowledge acquired via Research and Development (R&D).

Nevertheless, there are other factors that influence FDI inflows in a particular country other than differences in factor endowments and factor prices. Trade economists believe that return on investment, imperfect competition and product differentiation and other factors related to the comparative advantage paradigm are part of FDI investor"s motive. Apart from trade theory, Dunning"s eclectic paradigm explained in detail some important variables essential in attracting FDI inflows to Africa.

Dunning"s eclectic paradigm which is the combination of the imperfect market-based theories of FDI, that is, industrial organization theory, internalization theory and location theory. It postulates that, at any given time, the stock of foreign assets owned by a multinational firm is determined by a combination of firm specific or ownership advantage, the extent of location bound endowments, and the extent to which these advantages are marketed within the various units of the firm. The theory further argued that, the reason why FDI inflows are greater in one country but not in another is the country"s locational advantage. (Dunning, 1980, 1993). Dunning identifies four major types of FDI investors and their associated motives which are; market-seeking foreign investors will move to a country with less openness, efficiency- seeking foreign investors will move to a country with low labor cost, while natural resource-seeking foreign investors will invest on a country that is endowed with natural resources and strategic asset seeking investors flows to a country that is advanced in technology, skills or take over brand names.

Based on the foreign direct investment theories reviewed so far, it is improper to accept any of the above theories to explain the effect of some selected determinants of foreign direct investment inflows on Arabophones and Francophone"s countries. This is because the above theories was not able to combine both the investors" motives related factors and that of the host countries related factors detrimental to foreign direct investment inflows. For this reason, the current paper adopted the integrative theory.

The integrative theory gives a clearer view of the effects of some determinants of FDI inflows by analyzing it from the perspectives of host countries as well as investors. It incorporated the effect of the short-run, contemporaneous and the long-run effect of the FDI determinants on FDI inflows into its theory. For instance, eclectic paradigm, which is the combination of the firm and internalization theories, and industrial organization theory tackle FDI determinants from the viewpoint of the firm. The neoclassical and perfect market theories examine FDI from the perspective of free trade. The development and dependency theories shed light on the perspective of the host nation while integrative theory integrates those neoclassical, developments, dependency and eclectic paradigm that are important in attracting FDI inflows into a country in its theory.

According to integrative theory, foreign direct inflows are a function of the host country factors, the firms" factors and the foreign direct investors" related factors. Integrative theories account for the multiplicity of heterogeneous variables involved in attracting the FDI inflows in Africa. It also forms the current study theoretical background for identifying determinants of foreign direct investment using linguistic approach for comparative static analysis. Integrative theory is presented as;

FDI inflows = F (factors related to the host country, firm specific factors and investor factors related to their motives).

The interactive theoretical framework gives the basis for adopting dynamic ordinary least squares (DOLS) model of the current study to identify determinants of foreign direct investment in Arabophones and Francophone"s countries in Africa. The model captured all the relevant factors identified by interactive theory.

3.2 Reviews of Empirical studies

There are a number of empirical studies that have shown the effect of determinants of FDI in attracting it to the host countries. FDI has empirically been found to stimulate economic growth by a number of researchers (Glass & Saggi, 1999). It was also true according to Dees (1998) that China"s economic growth is an evidence of FDI spillovers. In Latin America FDI inflows has contributed a lot to the economic development of selected Latin America economy (De Mello, 1997). Some other studies conducted in the same region found that a certain income level is a crucial determinant of FDI inflows; below that level it does not have any effect (Blomstrom et al., 1994, Bengos & Sanchez-Robles, 2003). Their explanation was that a host country should have the capacity to absorb the effect of FDI inflows otherwise it would have no effect on the host country"s economy.

Neoclassical economists have argued that FDI influences economic growth by increasing the amount of capital per person. It does not influence long-run economic growth due to diminishing returns to capital. A study conducted in East Asia has shown that FDI has a positive effect on less advanced economy"s output than advanced economy (Bende-Nanende et al. 2002). However, there was no consensus on the positive impact of FDI on growth. For instance, a study conducted by Globeram (1979) on some selected developing countries stipulated that FDI has a significant effect on economic growth of the countries studied via its positive effect on domestic firms. Eighteen years later, Regnanet (1997) conducted a study in the same countries which he found the same result as Globeram. On the contrary, a study conducted in Asia countries by Aitken et al. (1997) found a negative relationship between FDI and economic growth. Other found inconclusive result. Zhang (2001) emphasizes that the effect of FDI has on the growth or growth of FDI of any economy may be country and period specific. Another determinant of FDI is financial development.

Financial Development stimulates the growth process of an economy. Its indicators assess the size, activities, and efficiency of a financial intermediaries and market in a country (Beck, Demirguc-Kunt & Levine, 2000). Financial development can make it easier for aid recipient countries to assess aid from foreign aid donors (Nkusu and Sayek, 2004). Furthermore, Beck"s study shows that countries with an effective financial sector have a comparative advantage in manufacturing industries. Nabamita and Sanjukwa (2008) agreed with Beck and highlighted the functions of financial development as the following; channeling resources efficiently, mobilizing savings, reducing the information asymmetry problem, facilitating trading, hedging, pooling and diversification of risk, aiding the exchange of goods and services and monitoring managers by exerting corporate control. Hermes and Lensink (2003) argued that financial development has a positive effect on FDI. The reasons advanced for the result were; a developed financial system mobilizes savings efficiently and as such may increase the amount of resources available to undertake investment. A well developed financial system reduces financial transaction and information acquisition costs. Financial development also speeds up the adoption of new technologies by minimizing the risk associated with it. With a well developed financial system, foreign investors are able to deduce how much they can borrow for innovative activities and are able to make investment financing decision ahead of time. It also increases liquidity and, thus, facilitates trading of financial instruments and timing and settlement of such trades (Levine, 1997). This will also lead to greater FDI inflows as the projects can be undertaken with lesser time being spent in settling the trades. Nabamita and Sanjukta (2008) conducted a study on developing countries and their findings were that there was a positive relationship between financial development and FDI inflows after a threshold level of financial development is reached. Beyond that level the effect becomes negative.

In theory, openness is one of the determinants of FDI inflows. Its effect on FDI inflows to an economy differs based on the investor"s motivation for engaging in FDI activities (Brainard, 1997; Markusen & Maskus, 2002; Navaretti and Venables, 2004). The more open an economy becomes the better for non-market seeking investors who would like to use the destination as an export base. On the contrary, market seeking investor who"s their target market is the host countries would prefer less openness. There are vast numbers of empirical studies that have found openness as an important determinant of FDI inflows. Chakrabarti (2001) study on the determinants of FDI inflows to developing countries, the study found out that openness is an important determinant of FDI and is positively related to FDI inflows. Moosa and Cardak (2006) conducted a similar study as Chakrabarti"s, they discovered that export as a percentage of GDP positively affects FDI inflows. Openness is found to be positively and significantly related to FDI inflows in developing countries (Lucas, 1993, Singh & Jun 1995). On the contrary, Busse & Hefeker (2007) and Globerman and Shapiro (2002), concluded that openness is statistically insignificant and does not affect FDI inflows. Some other researchers found an inclusive result with respect to FDI, such as Goodspeed et al. (2006). They found a positive and significant relation with FDI inflows in one model and insignificant in other specifications of the empirical model. When testing the vertical, horizontal and knowledge capital models, Markusen and Maskus (2002) concluded that trade precincts might be less significant as a motivation for horizontal tariff-jumping investments in developing countries. This means that a greater degree of openness will have less of an effect on the market-seeking investments in developing countries in comparison to developed countries.

Asiedu (2002) conducted a study by selecting some African countries; the author"s result implied that openness on FDI has a lesser effect in Sub-Saharan Africa when compared to other developing countries. Contrary to Asideu, Tøndel (2008) found that openness has a higher influence of FDI inflows in Sub-Saharan Africa than for other countries. There is also some evidence with respect to differences within the group of transition countries. When the economies first opened up for foreign participation in the 1990s, investments in Central Europe were vertical, whereas FDI activities in the Commonwealth of Independent States were either market or resource-seeking (Lankes & Venables, 1998; Meyer, 1998).

Morisset (2000) used panel data of 29 African countries over the period 1990-1997 to study the main determinants of FDI in Africa. Morisset"s study stipulated that GDP growth rate and openness are positively related to FDI in Africa. Campos and Kinoshita (2003) used panel data of 25 transition economies from 1990-1998 to study the main determinants of FDI. They found that natural resource endowment is the main determinant of FDI flows in Africa.

Return on investment is a critical factor for rational investors. Foreign direct investors will go to countries that pay a higher return on capital. According to Asiedu (2001), measuring the rate of return in developing countries is a difficult process. The reason is that the capital market in developing countries is under develop. The measurement which has been adopted for this variable is to use the inverse of real GDP per capita to measure the return on capital. The empirical result of the relationship between real GDP per capita and FDI is diverse. Edwards (1990) and Jaspersen et al. (2000) used the inverse of income per capita as a proxy for the return on capital and they concluded that real GDP per capita and FDI inflows as a ratio of GDP are negatively related. Schneider and Frey (1985) and Tsai (1994) studies found a positive relationship between the two variables. This is based on the argument that a higher GDP per capita implies better prospects for FDI in the host country.

One of the ways in which FDI positively affects economic growth is through the release of binding constraint on domestic savings in the economy. FDI makes it through the process of Capital accumulation. Given that domestic savings in Africa are very low, which may result in a low investment rate and hence lead to sluggish economic development (Ajayi, 2006). A study conducted by Khan & Bamou (2006) on some selected developing countries. They found that FDI has a positive effect on domestic savings through foreign savings. Other studies also found results that are consistent with those of Khan and Bamou (Asante, 2006, Abedian, 2003). Less emphasize has been put on trying to see effect of an improving domestic savings on FDI.

3.3 Conclusion

The literature findings have shown the great importance of FDI in Africa. It has also highlighted that Africa needs economic development, which is evidenced in the performance of some macroeconomic indicators identified by the literature and empirical studies. There has been an inconclusive finding on the effect of some determinants of FDI on attracting FDI inflows to a country, and few papers have undertaken a comparative study using a linguistic approach. However, this paper has contributed to the plethora of literature by adopting a linguistic approach to identify the effect of some determinants of FDI inflows in Arabophones and Francophones" countries.

Methodology

4.1 Types and sources of data

Secondary annual data were used in the study. The data were sourced from the United Nations Conference on Trade and Development (UNCTAD) data base and World Bank Development indicators (WDI) database. The period considered for the study was 1980-2010.

4.2 Model specification

The paper used the following variables in the model specification to assess the effect of economic growth (EG), inflation (INF), financial development (FD), openness (OPN), balance of payments (BOP), domestic savings (DS), infrastructure development (INFRD), government size (GS), return on investment (RI), domestic investment (DI), and country specific dummies on Foreign Direct Investment inflows in Arabophones and Francophone non-landlocked Africa countries.

Table 2: Description of variables

The dynamic ordinary least square estimates for heterogeneous panel

4.3 Techniques for data analysis

The paper first tests for Stationarity of the variables included in the models. The variables that are non-stationary at level were not tested for the existence of a co-integrating relationship because the dependent variable (FDI inflows) was stationary at level. Multi-Co linearity check was conducted using correlation matrix. The paper also had undergone some diagnostic tests such as Wald- test and Hausman test. Before estimating panel DOLS, the Hausman test preferred a fixed specification to random effects. The next step was to use a Dynamic ordinary least square (DOLS) regression to estimate the effect of some FDI determinants on FDI inflows in Arabophones and Francophone"s countries on a comparative static analysis.

Empirical results and interpretations

5.1 Panel Unit Root Test

The panel unit root tests were carried out to test for the Stationarity of the variables used in the model specification. The tests are necessary in order to avoid spurious results. This study adopted two types of first generation[2]panel unit root test such as Levin, Lin and Chu (LLC) (2002) and Fisher-Type test using Augmented Dickey Fuller ADF (Maddala and Wu, (1999)). The reasons why the study has chosen LLC and ADF over Im, Pesaran and Shin (IPS) (2003) and others is that; LLC generalize the Quah"s model which allows for heterogeneity of individual deterministic effects (constant and/or linear time trend) and heterogeneous serial correlation structure of the error terms assuming homogeneous first order autoregressive parameters. They assume that both N and T tend to infinity but T increase at a faster rate, such that N/T approaches to zero. ADF is similar to IPS but both LLC and Fisher- ADF allows for an unbalanced data in the test while IPS does not allow for unbalanced data. Therefore, the tests are suitable for this paper because its analysis was based on unbalanced data specifications.

Levin, Lin and Chu (2002) as well as ADF- Fisher Chi-square were proposed by Madala and Wu (1999) and they both have the same null hypothesis of unit root is presence against its alternatives.

In table 3 below, eight variables out of the eleven variables used in this paper were stationary at levels including the dependent variable FDI. Although the rest of the variables were stationary after first differencing, the co – integration test was not conducted because the dependent variables were stationary at level. The two adopted tests such as an LLC and ADF-fishers chi-square were consistent with their inferences. The variables with asterisk indicated the Stationarity integral order.

Table 3: Panel Unit root[3]for Non-landlocked Africa Countries

Probabilities are computed assuming asymptotic normality. Critical values 1% * 5%**and Critical values at 10%*** ASL represented Already Stationary at Level

In table 4, Stationarity test was conducted by dividing the non-locked countries into Arabophones and Francophone countries in Africa. The table shows that four variables out of the eleven variables were stationary at levels including the dependent variable (FDI) and the rest became stationary after first differencing using ADF-Fishers Chi-square test. The result was partly consistent with intercept only and intercept and trend specification. The inconsistency was that two additional variables became stationary at levels with intercept and trend in Arabophones. These included the dependent variable and trade openness (OPN). In the Francophone specification, seven variables out of the eleven variables became stationary at levels excluding the dependent variables when included only intercept. The nature of the variables showed the same results when intercept and trend were included, although it differs with domestic investment (DI).

Table 4: Panel Unit root for Comparative analysis using ADF-Fishers Chi-square

Probabilities are computed assuming asymptotic normality. Critical values 1% * 5%**and Critical values at 10%*** ASL represented Already Stationary at Level. The value in () represented variable that became stationary after differencing and it is exclusively for stationary test.

Although that the dynamic ordinary least squares (DOLS) model adopted included the long run and short run effect but in the advert of non-significant lags and lead variable the long run relationship disappears. Therefore, panel Co-integration became a necessary test for Arabophones and Francophone models.

5.2 Panel Co-integration Test

This paper employed Pedroni (Engle-Ganger based) Panel co-integration test suggested by Pedroni (1995, 1999, 2000). These tests extend the Engle and Granger (1987) two-step strategy to panels and relied on the ADF and PP principles.

Pedroni (1995, 1999, and 2000) proposed seven test statistics for co-integration in a panel framework. Four of the statistics are called panel co-integration statistics, which pooled within-dimension based statistics (Pedroni, 1995, 1999). The other three statistics developed by Pedroni (2000), are called Group-mean Panel Co-integration statistics, which are between-dimension panel statistics. The seven statistic is given as:

Each of the panel test statistics will be distributed asymptotically as a normal distribution.

The null hypothesis of no co-integration against the alternative of co-integration was tested using the seven statistics. According to the test if more than half of statistic were statistical significant, then the null hypothesis of no co-integration is rejected, otherwise you fail to reject the null co-integration.

Table 5: Pedroni (Engle-Granger Based) Panel Co-integration Test

Probabilities are computed assuming asymptotic normality. Critical values 1% * 5%**and Critical values at 10%*** represents the level of significance of the statistic.

In table 5, the co-integration model for Francophones countries includes; Foreign Direct Investment, trade openness, infrastructure development and financial development variables. The co-integration model for Arabophones countries includes foreign direct investment, trade openness, inflation, domestic investment, financial development and balance of payment. According to the test, there was a long run relationship between the independent variables and foreign direct investment in both model specifications. The variables included in the Co-integration test were those variables which became stationary after first differencing.

5.3: Model specification test

Table 6: Correlation Matrix[4]

The values without a bracket, [ ] and ( ) denotes the correlation matrices for non-landlocked Africa, Arabophones and Francophones countries respectively.

Table 6 shows the correlation matrices of different variables in the three models. This is one way of testing the presence of multicollinearity in model estimation. According to the test, none of the independent variable is highly correlated to each other. The next specification test conducted by this paper was Hausman test.

Table 7: Correlated Random effects-Hausman test[5]

According to table 6, the proper model specification for all the models was under fixed effect estimation which the paper adopted.

5.4 Empirical Results and Discussions

This paper used Dynamic Ordinary Least Square (DOLS) to answer all the objectives. The DOLS allowed for the inclusion of both variables that were stationary at levels and those that became stationary after differencing in the model. The lag and lead of explanatory variables that were not stationary at level were included in the model after differencing and insignificant lag and lead variables were excluded in the final presentation of the tables below.

Table 8 below shows empirical findings of the determinants of FDI on FDI inflows in Arabophones, Francophone and non-landlocked Africa countries. The non-landlocked countries exclusively include only those countries that their official language is either French in the case of Francophone or Arabic for Arabophones. The model included in its panel estimation, seven Francophone countries such as Gabon, Benin, Cote d"Ivoire, Togo, Guinea, Madagascar, and Senegal.

Table 8: Linguistic approach effect of FDI determinants in non-landlocked Africa countries

Probabilities are computed assuming asymptotic normality.

The five Arabophones countries included in the analysis were Algeria, Egypt, Morocco, Tunisia, and Mauritania. The variables included in the model were Investment (DI), Domestic Savings (DS), Economic Growth (EG), Inflation (INF), and Infrastructure Development (INFRD), Government Size (GS), Openness (OPN), Balance of Payment (BOP), Financial Development (FD), and Return on Investment. Durbin-Watson statistic of 1.709, 1.051, 0.977, 0.978 and 0.978 as in Arabophones, Francophone, non-landlocked, inclusion of Arab dummy, and the inclusion of Franc dummy respectively. Although all the models except Arabophones model specification shows a presence serial correlation but the F-statistic entailed that all the model specification are good. That is, one can make inferences from the result because the F-statistic is significant. In addition, the R-squared and the Wald test shows that the model fitness was good as well as the null hypothesis of overestimation were rejected in the entire models. All the estimations were carried out under fixed effect specification of unbalanced panel data suggested by the Hausman test.

The result showed that the contemporaneous Financial Development (FD), Domestic Savings (DS), Balance of Payment (BOP), Trade Openness (OPN), lead of Domestic Investment (DI), lead of Domestic Savings (DS) and lead of Infrastructure Development (INFRD) are determinants of Foreign Direct Investment (FDI) inflows in Arabophones countries that were statistically significant. The same variables were identified as some determinants of FDI inflows in Francophones countries except the lead of Domestic Investment (DI), the lead of Domestic Savings (DS), and lead of Infrastructure Development (INFRD) and inclusion of lagged INFRD and inclusion contemporaneous INFRD and DI were also statistically significant. The non-landlocked Africa countries model showed that the same variables were also the determinants of FDI inflows inclusive of contemporaneous Real Economic growth (EG), contemporaneous DS, contemporaneous Inflation (INF) and excluding their lagged and lead variables. There was a slight change when Linguistic approach differences were captured as dummy variables. Although, the dummies were not statistical significant but it improves the model by the identifying lead OPN as one of the determinants of FDI inflows in non- Landlocked countries of Africa.

According to the result, an increase in the financial development by a unit increases the FDI inflows to Arabophones countries by 0.0003 units, in the non-landlocked by the same units but reduces the FDI inflows to Francophone countries by 0.001 units. The effect was statistically significant. The result is consistent with Hermes and Lensink (2003) and Nabamita and Sanjukta (2008), which found a positive relationship between financial development and foreign direct investment. However, the negative effect with the Francophones countries can be associated with the type of foreign direct investor"s motive.

Furthermore, an increase in infrastructure development (INFRD) reduces the FDI inflows to Francophones countries by 0.0003 units and the effect is statistically significant. Although the effect in both Arabophones and non-landlocked countries have a positive effect but was not statistically significant. Good infrastructures stimulate production, reduce operating costs and invariably encourage FDI inflows (Wheeler & Mody, 1992). It also increases the productivity of investment and hence economic development. But this finding were not consistent with the relationship between INFRD and FDI for Francophones countries and that of Arabophones in the long-run. According to the current paper's findings, an increase in INFRD by a unit reduces FDI inflow to Francophones by 0.0003 units and 0.0008 units to Arabophones in the long-run.

There was a positive relationship between the domestic investment (DI) and FDI inflows to Arabophones and Francophones countries. This implies that FDI inflows crowd in DI in both countries, and its effect on Francophones is statistically significant while on Arabophones is not. However, domestic investment has a positive effect on FDI inflows to Arabophones in the long-run and statistically significant at 10 percent as depicted from the empirical result.

Fiscal and monetary disciplines by the recipients" government have a negative effect on the FDI inflows in their country. These disciplines can be seen from the nature of their balance of payment (BOP). The empirical findings in this paper showed that an increase in BOP by a unit reduces the FDI inflows by 0.0006 units, 0.001 units, and 0.0009 units in Arabophones, Francophones and Non-landlocked Africa countries excluding Lusophone countries of Africa respectively.

Another determinant of FDI inflows to Arabophones and Francophones countries was trade openness. In theory, trade openness effect on FDI inflows to an economy depends on the investor"s motivation for engaging in FDI activities (Brainard, 1997; Markusen and Maskus, 2002; Navaretti and Venables, 2004). According to the authors, a more open an economy becomes the better for non-market seeking investors who would like to use the destination as an export base. On the contrary, market seeking investor whose target market is the host countries would prefer less openness. This paper result to a certain extent is consistent with the theory based on the non-market foreign direct investor"s motive, that is, an increase in the trade openness (OPN) by a unit increases the FDI inflows to Arabophones countries 0.0412 units and to Francophones countries by approximately the same units (0.0411 units). It also increases the FDI inflows to Non-landlocked countries of Africa excluding Lusophone countries by 0.0266 units and to the model that captured the Linguistic differences as dummies in the short-run by 0.030 units.

Contemporaneous inflation (INF), real economic growth (EG) and domestic savings (DS) have a positive effect on FDI inflows to Arabophones, Francophones and Non-landlocked excluding Lusophone countries and the models with dummies. Although, the positive effect is statistically significant on the other models excluding Arabophones and Francophones models, the DS has a negative effect on FDI inflows to Arabophones countries. That is a percent increase of DS reduces FDI inflows to Arabophones countries by 0.0004 units in the long run.