The importance and determinants of foreign direct investment for African countries

The purpose of this thesis is to investigate the importance and the determinants of FDI inflows to Africa. The determining variables used for this thesis includes GDP which is a proxy for market size, trade which is also a proxy for openness to trade, nominal exchange rate and natural resources. This thesis used a regression analysis on a panel data of 10 countries for the period of 2001 to 2016. The empirical results for FMOLS indicated that all variables are statistically significant at 5 percent level of significance. However, DOLS empirical results indicated that natural resources do not affect the inflow of FDI to African countries. There is need to further exploit data to find more information about the determinants of FDI flows to African countries as it is an essential component for the economic growth. In addition, there is need for Africa to create a good business environment with less instability of macroeconomic indicators such as exchange rate and inflation. There is also need for Africa to shift from the mineral extraction sectors to the industrial sector; this will help to diversify the economy. This thesis brings understanding that, some investors are not resource seeking rather have different investment objectives such as market seeking. This is shown by the results presented by both FMOLS and DOLS for natural resources. Keywords: Africa, foreign direct investment, natural resources, theories of foreign direct investment.