Institutional quality, foreign direct investment, and economic development in sub-Saharan Africa
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Foreign direct investment (FDI) is regarded as a critical determinant in the concept of
development for Africa. However, institutional quality in the recipient countries is considered
an essential factor that can be used to drive FDI flows inward. The study aims to establish the
effect of institutions’ challenges on the FDI inflow and how it impacts on economic development
for host selected countries in sub-Saharan Africa (SSA). The study employed pooled
data for 30 SSA countries for the period within the years 2000 and 2018. The analysis
method used was the fixed and random effect regression model utilized to estimate the effect
of foreign capital on economic development with considerations for the quality of institutions
for developing SSA sub-region of Africa. This study reveals that foreign capital inflow is
crucial for economic development in the SSA sub-region of Africa. Quality of institutions as
determining factors also affected the level of inflow of FDI to the host SSA sub-region, which
resulted in the underutilization of domestic resources and hence abnormal development of
domestic sector investment. The study recommends that the government of host SSA subregion
needs to consider the degree of institutional quality to encourage further FDI inflows.
To afford the maximal benefit of FDI in the development of the host domestic sector and to
guard the industry that foreign investment flows into carefully. It is expedient, thereby, that
the domestic investment is enhanced to ensure that dependence on foreign capital inflow
continues to decline as income increases. Until domestic investments are sufficient to generate
advancement in technology and desired economic development for the selected
countries, in the SSA sub-region.
Keywords
HB Economic Theory, HG Finance