Level of Income and the Investment Development Path Theory: Evidence From Africa

Abstract

The investment development path theory delineates countries in stages I, II, III, IV, and V according to the level of development as developing, transition, and developed countries. The World Bank’s classification of countries by income, however, identifies countries as lower-income, lower-middle-income, upper-middle-income, and high income. In this paper, we test the investment development path theory for countries based on the level of income using data from 1980 to 2019. Africa offers unique data as it is the only continent made up of entirely developing countries together with countries that fit into all four classifications based on income. Income level classifications appear to enhance the position of countries within the investment development path ahead of that based on the United Nations classification. The use of income classification should complement that of the United Nations in the empirical testing of the investment development path theory for a more current investment development path status.

The Investment development path theory: Evidence from developing countries’ agricultural sector

“…In an earlier study with other colleagues, we found that agricultural FDI explained agricultural GDP (Djokoto et al, 2022). Other studies made similar findings ( (Djokoto, 2013;Gunasekera et al, 2015) whilst the reverse is also true (Djokoto, 2012;Kassem and Awad, 2019;Lv et al, 2010), hence there can be an endogeneity problem.…”

“…Recently, Djokoto (2021b) found that the IDP explains human development (HD). Further, using the GDP per capita as an indicator for IDP, Djokoto (2022) showed that GDP per capita is positively related to human development. It is worth noting that although GDP per capita is an ingredient in the construction of the HDI, it is not the only ingredient.…”

“…HC was captured as the secondary school enrolment as a percentage of gross enrolment following Djokoto (2022). A skilled labour force is an ownership advantage that firms must possess to engage in outward FDI and to support inward FDI.…”

“…Compared to other sectors, the growth of the agricultural sector is two and four times more operative in boosting incomes amongst the most deprived (World Bank, 2022). Thus, developing countries have sought agricultural development through policies to entice foreign direct investment (FDI) into the agricultural sector (Djokoto, 2022;Ju et al, 2022;Tian, 2023;Wardhani and Haryanto, 2020). As a result of knowledge gained from foreign firms, agricultural multinationals (AM) have emerged in some developing countries (Chen and Guo, 2017).…”

“…Stages I, II, III, IV and V have been identified. These reflect the international attractiveness of the economy and firms’ cross-border expansion and give guiding steps for an appropriate economic strategy ( Buckley and Castro, 1998 ; Djokoto and Pomeyie, 2021 ; Dunning, 1981a , b , 1986 ; Dunning and Narula, 1996 ; Gorynia et al , 2019 ).…”