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Foreign Direct Investment in Africa: What are the Key Factors of Attraction aside from Natural Resources?

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Abstract

This input, essentially empirical by nature, analyses the FDI determinants in Africa independently from the already clearly identified attraction of natural resources. Do powers of anticipation as to the general prospects for these economies influence incoming flows of capital? What role is played by socio-political instability connected to the social consequences caused by conflicts? Are the processes of regionalization enhancing the appeal of countries that are going down that path? From a panel of 28 African countries, the results from estimations obtained using the Hausman-Taylor method of instrumental variables show that the impact of projections on any ongoing decision to invest in the continent is not statistically significant. Our results also show that, although negative, the direct correlation between social risk, a proxy of socio-political instability, and flows of foreign investment is not systematically significant.. However, the fact remains that these instabilities undermine national competencies (human capital) and compound certain ills such as HIV/Aids, whose impact on foreign investment increases along a negative curve in the presence of social risk. However, the simultaneous introduction of regionalization processes into our estimations tends to lower the adverse effects of instability on certain explicative FDI variables.

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