Legal source, institutional quality and FDI flows in Africa

Abstract

Purpose This paper aims to find out how the legal system interacts with other institutions in attracting Foreign Direct Investment (FDI) into Africa. Design/methodology/approach The authors use annual panel data of 49 African countries over the period 1980 to 2011, and use the system generalized method of moments (GMM) estimation technique and pooled panel data regression. Findings The authors find that the source of a country’s legal system deters FDI inflow as institutions alone cannot bring in the needed quantum of FDI. In terms of trading blocs, it was found that there is negative significant relationship between institutional quality and FDI for South African Development Community (SADC) as well as Economic Community of West Africa States (ECOWAS) countries. Practical implications For policy implications, the results suggest that reliance on institutions alone cannot project the continent to attract the needed FDI. Originality/value Empiricists have devoted considerable effort to estimating the relationship between institutions and FDI on the African continent, but this paper seeks to ascertain the effect of legal systems and institutional quality within African specific trade and regional blocks.

Foreign Ownership in Sub-Saharan Africa: Do Governance Structures Matter?

“…Government effectiveness is the ability and the capacity of a country to enact and implement plans and strategies to build sufficient infrastructures [48]. Our result was consistent with the earlier findings of [7,9,27], and therefore supports us with the answer to our first research question: the predominance of foreign investors in Sub-Saharan African countries economies is influenced by effective government.…”

“…The level of the predominance of foreign ownership in African countries greatly depends on the individual country's ethical conduct, integrity, honesty, and political and administrative conducts in respecting the rule of law, as suggested by earlier studies [3,4,7]. Contrary to these studies, our paper found out that, although the coefficient of the Rule of Law variable showed a positive relationship between the rule of law and the predominance of foreign ownership in the Sub-Saharan African countries, their relationship was statistically insignificant.…”

“…Nevertheless, there seems to be aggressive competition by domestic corporate companies in attracting foreign ownerships in a globalized economy, and thus foreign investors recognize good country-level corporate governance as an unambiguous influencing key factor [3,[6][7][8]. Government establishments which consist of governance structures and enactments that are built on global laws and standards would enable developing economies to rationalize their corporate structures, which in turn could enhance the predominance of foreign ownership in their economies [9][10][11].…”

“…Economies that are characterized by weak governance establishments, inaccurate accountability systems, and the ineffective protection of investors put off foreigners from investing money in their corporate firms [3]. Consequently, foreign investors tend to invest in the firms of economies that are known for strong and effective governance establishments, which would help to guarantee accountability, transparency, the protection of investors, and many other benefits [7].…”

Impact of Tax Incentives on Foreign Direct Investment: Evidence from Africa

“…Several reasons have been established as to why foreign firms prefer certain countries. Most researchers have stressed that factors such as corruption, internal security, rule of law, quality of regulations, the effectiveness of government, voice and accountability, market size and infrastructure, among many others are the economic essentials for investment environment [1][2][3][4][5][6][7][8][9][10]. According to Appiah-Kubi et al [10], there have been several recommendations for Africa countries to lure remarkable inflows of foreign direct investment to enhance infrastructural development by the United Nations Sustainable Development Goals (UNSDG).…”