Foreign Direct Investment inflows to Sub Saharan Africa: Do resource endowment and market size matter?

Abstract

The study examined whether resource endowment and market size of an economy are significant channels for Foreign Direct Investment (FDI) inflows to Sub Saharan Africa (SSA). It employed the System Generalized Method of Moments (SGMM) in analysing unbalanced panel data of 31 countries covering the period from 1996 to 2015. The primary findings indicate that both resource endowment and market size are significant channels in attracting FDI inflows to SSA. The comparative analysis between rich and poor resource countries confirms suggestive evidence of higher affinity in rich resource countries over poor resource countries in attracting FDI inflows. A similar finding is evident between large and small market size in which countries having large market size exhibit higher attractive level of FDI inflows. The finding implies that, host countries in SSA should make policies underpinning GDP growth including infrastructure development to enhance local market competitive capacity. Similarly, countries endowed with abundant natural resources should enact favourable laws and regulations in guiding effective use of these resources for their national benefits through resource promotion to attract significant FDI inflows.