The Effect of Foreign Direct Investment on Industrialisation in Sub-Saharan Africa: The Role of Institutional Quality
The Effect of Foreign Direct Investment on Industrialisation in Sub-Saharan Africa: The Role of Institutional Quality

Summary/Abstract: This study examines the relationship between Foreign Direct Investment (FDI) and industrialisation through the role played by the quality of institutions. It examines the effect of FDI on industrialisation for a sample of 39 sub-Saharan African countries over the period 2006-2019. The estimation techniques are based on Dynamic Least Squares (DOLS) and Fully Modified Least Squares (FMOLS) methods. On the one hand, the results of the estimates show that FDI does not contribute directly to the industrialisation of sub-Saharan Africa, but does have a positive and significant impact on industrialisation. On the other hand, foreign direct investment contributes to the industrialisation of sub-Saharan Africa through the role played by the quality of the institutions in place. This positive and significant effect is a characteristic of the sub-Saharan African region, but varies from one country to another. These differences are mainly explained by the availability of natural resources and the varying quality of existing institutions in the different countries. Based on these results, sub-Saharan African countries should establish a strong link with foreign direct investment and promote industrialisation through quality institutions in order to ensure adequate structural transformation.

• Details
• Contents