The export-diversifying effect of foreign direct investment in the CEMAC Region

Abstract

This study aimed at investigating the export-diversifying effect of Foreign Direct Investment on the economies of the CEMAC sub region -notably, Cameroon, Central Africa Republic, Chad, Congo, Equatorial Guinea and Gabon. This was achieved empirically by using a Generalized Linear Model estimation technique implemented using the logit link function and the Gaussian distribution family to take care of the fractional nature of the concentration index. The results, both descriptive and empirical, showed that within the sub region the countries are heterogeneous in terms of foreign direct investment and diversification index. The most diversified economy in the region is Cameroon, followed by Central Africa Republic, Gabon, Congo, Equatorial Guinea, while Chad is the most concentrated with an index of 0.80. Empirically, the results clearly showed that in this region foreign direct investment, value added in the manufacturing sector and trade openness foster export diversification while rents from natural resource endowment and appreciation of the official exchange rate deter export diversification. The results also point to the fact that the export diversifying effect of foreign direct investment differs across economies in this region, with statistically significant effect obtained for Cameroon and Central Africa Republic, while an insignificant positive effect is observed for Congo. The results obtained are quite implicative, suggesting that policies should be put together to encourage foreign direct investment in countries such as Gabon, Chad and Cameroon that have witnessed very low levels of foreign direct investment in this region, while institutions and structures that are friendly for investors should be put in place to promote the manufacturing sector in the entire region.