The role of agricultural sector performance in attracting foreign direct investment in the food and beverages sector. Evidence from planned investments in Africa

Abstract

Using a novel dataset on foreign direct investment (FDI), this paper analyzes the correlates of planned FDI in the food and beverages sector in 49 African countries over the period 2003–2017. It applies the random effects model and augments the standard specification of FDI determinants with a set of factors related to the agricultural sector performance, hypothesized to be essential from the perspective of supply chain linkages and access to raw materials. The results indicate that well‐performing and well‐capitalized agricultural sector of the host country is a key factor associated with the choice of investment location by foreign investors, especially those from the Global North. Capital investment in agriculture, as proxied by agricultural gross fixed capital formation and net capital stock, is particularly important. Public investment in agriculture, in the form of government expenditure and official development assistance, is also associated with higher FDI. These factors, however, are not significant in case of the least developed countries where only market potential appears to matter for foreign investors. The results suggest that complementarities may exist between different types of investments and that policy‐makers willing to attract food and beverages FDI should prioritize agricultural sector development. [EconLit Citations: E22, E24, F21, F23, Q00, Q13, Q18].

Determinants of foreign direct investment in the agricultural sector: Empirical evidence based on economic regional data in Vietnam

“…The results indicated that it is the second most influential factor on Investment Decision with a strong impact (f 2 = 0.385). To a certain extent, it is consistent with the study of Kubik (2023) stating that the well-performed and well-invested agricultural sector of the host country is the main factor influencing location choice of MNEs in the food and beverage sector.…”

“…Estimated by fixed effects for the panel data, Farr (2017) found that a new variable which measured energy imports as a share of total energy usage was statistically significant and negative to FDI inflows to the agricultural sector of 21 Latin American developing countries. Kubik (2023) found that the performance of the agricultural sector of the host country has a significant impact on the location choice of MNEs, using data of 49 African countries in the period 2003-2017. The author used agricultural production, value added, private and public investment, and the availability of agricultural land to represent the performance of the agricultural sector.…”

“…Approaching from the perspective of the host country to actively implement activities to attract FDI usually through investment incentives including fiscal incentives, financial incentives (Kubik, 2023;Cuervo-Cazurra et al, 2022;Husmann and Kubik, 2019;Etim et al, 2019;Rogers and Wu, 2012;Faeth, 2009).…”

“…Approaching from the perspective of the economic sectoral level, in which the local authorities implement policies to create a favorable business environment for agricultural development. The research of Kubik (2023) indicated that the well-performing and well-capitalized agricultural sector of the host country plays an important role in FDI localization.…”