Does Quality of Host Regulation Matter in Multinational Investment Attraction? Evidence from Sub-Sahara Africa

Abstract

1. Introduction With the increase in globalization, there has been an enhanced discussion on cross-border flows of capital between nations around the world. Multinational firms' serves as the channel through which these funds find their way around the globe-these multinationals sources for an efficient economy with working institution and system to invest and operate. System is crucial in every human organization regardless of its objectives, structure, size, and endowment or complexity. This provides the platform for the exceptional discharge of duties, professional competencies and efficiency to perform, flourish and prosper. Economies with an efficient system, though not necessarily endowed with abundant natural resources are creative and innovative because of their efficient use and management of most intangible resources-human and quality institution supporting the human endeavour. Modern theories of globalization from the perspective of economics postulate that institutional conditions can facilitate or hinder the chance of an economy to function well and drive investors. (Acs et al., 2008, 2009, 2013). Consequently, variations in the nature and structure of host institution can be detrimental or provide an opportunity for prosperity in attracting foreign capital (Acs et al., 2008; Stenholm et al., 2013). Despite a large number of studies investigating the relationship between institutions and foreign investments, large dispersion still exists among empirical findings, especially in developing economies (Herrera-Echeverri et al., 2014). Although the literature on foreign investment pointed out a range of potential benefits to economies, these benefits include its role in facilitating technology transfer and skill (human capital) upgrading, its spillover effect on domestic investment, and improvements in institutions. However, the successful reaping of these benefits depends on the prevailing conditions of the host economy regulatory quality. These conditions include the rule of law, control of corruption and quality of policies to translate to economic prosperity. SSA is faced with enormous challenges, and these challenges make foreign capital very crucial to Africa as a continent due to the need for revenue to meet with the challenges as governments are saddled with the responsibility of