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RISK, UNCERTAINTY AND FOREIGN DIRECT INVESTMENT IN AFRICA: What Do We Know and Any Policy Lessons?

RISK, UNCERTAINTY AND FOREIGN DIRECT INVESTMENT IN AFRICA: What Do We Know and Any Policy Lessons?

 

Abstract: This paper revisits the relationship between risks, uncertainties and FDI inflows in Africa, using recent data and twelve different measures of risk and uncertainty. Empirical estimation involves the use of panel fixed and random effects estimation techniques, with annual data covering 2000 – 2012. The results show that economic openness and level of external reserves are important macroeconomic variables that attract FDI inflows on the continent. As regards the significance of some of the measures of risk and uncertainty, it was found that while sound public administration, good competitive environment and investment climate have a positive impact on FDI inflows, sound fiscal policy, improved infrastructure and better environmental policy discourage FDI net inflows. An important implication of the results is that African countries need to balance their policy objectives and make a choice between better welfare for their citizens through the provision of better infrastructure and environmental policies, and that of attracting more FDI inflows.

 

 

 

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