Transport infrastructure and foreign direct investment

Abstract

This paper analyses the role of infrastructure availability, particularly with respect to transportation, in improving the investment climate for and in determining the attractiveness of foreign direct investment (FDI) inflows. The study is initially based on the small island developing state of Mauritius for the period 1960-2004. Using an ARDL approach, transport infrastructure availability is seen to have contributed to the relative attractiveness of the country towards FDI and such is also the case for non-transport infrastructure. Moreover, the presence of dynamism and endogeneity is also established in FDI modelling. The analysis was then extended for the case of a sample of 20 African economies over the period 1986-2000. Using panel data framework, the fixed effect model estimated a positive and significant coefficient for transport infrastructure, implying that foreign direct investors are sensitive to transport capital. The other type of infrastructure is also judged to be important by these investors, though to a slightly lesser extent than transport. These findings supplement the existing literature on the determinant of FDI. Copyright © 2008 John Wiley & Sons, Ltd.

Analysis of Foreign Direct Investment, Agricultural Sector and Economic Growth in Tanzania

“…Foreign investors refrain from investing in agriculture sector in developing countries due to many factors. Khadaroo [43] argues that companies intending to invest in developing countries and take advantage of lower labour costs, have to deal with higher transport costs and disrupted service due to inadequate transportation means. These are factors that contribute to low FDI inflow to agriculture and hence its small contribution to economic growth and poverty reduction.…”

The Impact of Infrastructure on Foreign Direct Investment in Malaysia

“…Their study covered a panel of 42 countries from 1982 until 1988. Based on another study by Khadaroo and Seetanah (2010) [12], they claimed that transportation-based infrastructure has been acknowledged as an important factor in making these countries attractive to foreign investors in short and long run. Their analysis consists of 30 Sub Saharan African countries (SSA) where figures such as the number of telephones per 1,000 populations and the length of paved roads per square kilometer of area are used to capture the effect of infrastructure.Meanwhile, Asiedu (2002) [2] focuses on 34 African countries and uses the same method to examine the effect of infrastructure development to FDI.…”

“…The fierce competition from the emerging markets such as China, India and Vietnam, and their ability to provide unbeatable cheap and abundant labour, has helped them win more FDIs than any other developing countries including Malaysia. However, moving a business to a labour intensive country with poor transportation infrastructure offsets any advantage that the cheap labour country has got to offer (Khadaroo and Seetanah, 2010) [12]. If a country can offer incentive by lowering the cost of doing business, particularly the transportation cost, this can increase the level of FDI inflows.…”

The Impact of Infrastructure on Foreign Direct Investment: The Case of Pakistan

“…Though, the studies of Akhtar (2000) and Aqeel and Nishat (2004) contributes towards the literature on FDI for Pakistan, but these studies ignored the important determinant of FDI i.e. infrastructure (Root, 1979;Wheeler & Mody, 1992;Kumar, 2001;Asiedu, 2002, Sekkat andVeganzones-Varoudakis, 2004;Kok &Ersoy, 2009 andSeetanah, 2010).…”

“…In recent studies, Khadaroo and Seetanah (2010) addressed mainly on transport infrastructure along with some other variables of FDI and evidenced the positive significant contribution of infrastructure in captivating FDI. Though, the studies of Akhtar (2000) and Aqeel and Nishat (2004) contributes towards the literature on FDI for Pakistan, but these studies ignored the important determinant of FDI i.e.…”