The linkage between foreign direct investment decisions and institutions in the African context
Thesis (MCom)--Stellenbosch University, 2018.
ENGLISH SUMMARY : Foreign direct investment (FDI) is worldwide considered as one of the most important stimuli for economies. Its importance is not only limited to monetary or physical investments, it also enforces technology-transfer, which leads to a more sustainable economic development. Many African countries are currently in a process of transition. After claiming independence in the 1960s and 1970s, many countries have suffered tremendously from the breakdown of formal institutions due to civil wars and other turmoils. During the period of the conflicts, countries were disconnected from the world markets and foreign investors. Nowadays, however, as African countries’ conflicts have been settled over the past decades, institutions have been partly rebuilt, the connection to the world market has been re-established and new investment partners have been found. The arrival of new investment partners in Africa has strongly changed the ‘rules of the game’ and has thereby rearranged the balance of forces in the investment sector. This thesis takes a look upon the current status of investment relations between African host countries and foreign investors to reveal the lines, along which these partnerships have been built. Each country has a unique set of formal and informal institutions. The importance and dominance of single elements of this set can vary over time and through (historical) events and strongly determine the investment partnerships. Using a probit model, this thesis takes an actual investor’s point of view and examines the determinants of the foreign direct investment decisions. By introducing aspects of informal institutions, the model expands the common perception of partnerships only based on formal institutions. The results indicate that former common findings regarding FDI attracting determinants are partially misleading. Although property rights, education, and a stable government, for instance, are often celebrated as the foundation for foreign investors, the findings relativise this assumption. Moreover, this thesis finds similarities with other publications regarding institutional structures and their impact on FDI inflows, but also refutes some of them.
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