Foreign Direct Investment, Governance and Inclusive Growth in Sub-Saharan Africa

Abstract

Motivated by the projected rebound of foreign direct investment (FDI) inflow to sub-Saharan Africa (SSA) following the implementation of the AfCFTA and the finalization of the Africa Investment Protocol, we examine how FDI modulates the effects of various governance dynamics on inclusive growth in SSA. We do this by testing two hypotheses first, whether unconditionally FDI and various governance indicators (rule of law, control of corruption, regulatory quality, governance effectiveness, political stability, and voice and accountability) foster inclusive growth in SSA; and second, whether these governance dynamics engender positive synergy with FDI on inclusive growth in SSA. Using data from the World Bank's World Governance Indicators and the World Development Indicators for the period 1990-2020, we employ several fixed effects, random effects, and the system GMM estimators for the analysis. First, we find that FDI and all our governance dynamics are significant inclusive growth enhancers in SSA. Second, though FDI amplifies the effects of all our governance dynamics on inclusive growth in SSA, governance effectiveness, voice and accountability, and political stability are keys. Policy recommendations are provided.

The Synergy between Governance and Economic Integration in Promoting Female Economic Inclusion in Sub-Saharan Africa

“…Further, we expect 𝜽 𝟐 to further improve female economic participation. To inform policymakers on the extent to which economic integration can be complemented with a policy variable (i.e., political, economic and institutional governance) to further improve female economic participation, we are consistent with an approach by (Ofori and Asongu 2021). Accordingly, when both the unconditional and conditional effects have the same sign, it translates a synergy effect.…”

“…Second, following contemporary African inclusive governance studies(Ofori and Asongu 2021;Oluwatobi et al 2015;Asongu and Nwachukwu 2015) we proxy six governance indicators which are sourced from World Governance Indicators of the World Bank into three components, namely: (1) political stability and voice & accountability (composed as political governance), (2) regulatory quality, government effectiveness (components of economic governance), (3) corruption-control and the rule of law (constituents of institutional governance). These three main indices are obtained using PCA which is elaborated in a subsequent section.…”

The Impact of Voice and Accountability in the ESG Framework in a Global Perspective

“…VA has a positive impact on Chinese FDI in Africa [5]. VA improves FDI in Sub Saharan Africa-SSA [6]. The positive impact of VA, and other governance indicators, on FDI inflows is greater for developed countries then for developing nations [7].…”

Untitled

“…For instance, a sound institution helps to establish the stage for economic change, social cohesiveness, and tourist stays growth (Khan 2012). Moreover, good institutional quality helps sustain, integrate, and attract investors and helps minimize investment risk (Ofori & Asongu, 2021) and guarantee investment returns (Ofori, Dossou, & Akadiri, 2022).…”