Essays on foreign direct investment and firm economic activities in selected sub-Saharan African countries

Nyeadi, Joseph Dery (2018-12)

Thesis (PhD)--Stellenbosch University, 2018.

Thesis

ENGLISH SUMMARY : In recent times, the attraction of foreign direct investment (FDI) into economies has been a major task embarked upon by many nations. Though much have been documented on the impact of foreign direct investment inflow to host nations at the macro level, less is known about the impact of foreign direct investment at the firm level, especially in Africa, despite the greater efforts put in place to woo in FDI. This study investigated the link between FDI and firm economic activities in Sub-Saharan Africa (SSA). The study specifically answered the following questions: (1) to what extent does FDI inflow to firms enhance the value of the host firms? (2) Do firms with FDI spend more on CSR than non-FDI owned firms? (3) What impact has FDI got on firm innovation? The outcome of the study has been organized into three empirical essays. The first empirical essay investigates the relationship between Foreign Direct Investment (FDI) and firm value (measured using Tobin’s Q and ROA) for selected African firms from Ghana, Nigeria and South Africa for the period of 2008 to 2012. Using the System Generalized Method of Moments, we established that FDI has a positive significant impact on firm value in all the three countries (South Africa, Nigeria and Ghana). This positive relationship between FDI and firm value in the selected countries can be attributed to technological transfer, managerial transfer, innovation transfer and skills transfer in favour of the host firms through inflows of FDI. The second essay investigates empirically the impact of inward FDI on host firm Corporate Social Responsibility (CSR) performance in South Africa. The study employs Panel Corrected Standard Errors (PCSE) and Seemingly Unrelated Regression (SUR) to estimate the effect of FDI on CSR and thus addresses contemporaneous cross-correlations across the panel cross sections as well as endogeneity between FDI and CSR. It is established from the study that FDI has a strong positive impact on firm CSR performance. When CSR is decomposed further into its major components, FDI positively impacts on social and environmental components but has no impact on governance components. The third empirical essay investigates the impact of inward FDI on host firm innovation in Nigeria and South Africa. In examining the relationship between FDI and firm innovation, two robust Instrumental Variable estimation techniques (Two Stage Least Squares and Limited Information Maximum Likelihood) have been employed so as to account for endogeneity problems. While FDI positively influences firm innovation in Nigeria, we found no evidence of any impact of FDI on firm innovation in South Africa. This study does not only serve as a reference work for subsequent investigations on the impact of FDI on innovation in Sub-Saharan Africa, but it also serves as a guide to policy makers on trade and investment policies. The contribution of this thesis is in a number of ways. One, it accounts for endogeneity between FDI and firm value and FDI and innovation, an issue often neglected by most studies. It is also the first study to empirically examine the relationship between FDI and CSR in a more encompassing manner by using a unique and comprehensive measure of CSR from the Public Investment Corporation (PIC) Governance Survey in South Africa. Again, unlike previous studies where CSR is measured by using only governance, or only legal or only environmental or only philanthropic issues or the combination of them in a limited manner. In this way new evidence is presented on the FDI effect on CSR. For instance, although the effect of FDI on one dimension of CSR e.g. governance may be insignificant, it does not tell us anything about the importance of social and environmental CSR effects of FDI unless these are equally investigated. The study again presents new evidence that shows that context matters in investigating the innovation impact of FDI. Furthermore, unlike most studies which use R&D and patents to measure innovation we create an innovation index using a multiple correspondent analysis (MCA) approach which captures innovation holistically. This approach captures the time lag problems associated with previous methods.

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