Macroeconomical Determinant of Foreign Direct Investment in Sub-Saharan African Countries

Abstract

This study examined macroeconomic variables that influence foreign direct investments (FDI) into Sub-Saharan Africa (SSA). Within the context of pull factor theory, this study focuses on the effects of these variables using panel econometric models. Using an ex post facto research design, this study will use a panel of 10 SSA countries from 1990 through 2024. This study uses the exchange rate, inflation rate, private sector credit, and trade openness as the explanatory variables. The dependent variable for this study will be the FDI inflows. In order to identify the estimation model to use, a Hausman test will be performed on the panel data. Empirical findings show that the exchange rate, private sector credit, and trade openness are all positively correlated with FDI flows into SSA, whereas inflation is negatively correlated with the FDI flows into the region. This means that macroeconomic stability, growth in the financial sector, and trade openness boost the investment opportunities available in the SSA countries and attract foreign investment. Based on this study, it can be stated that maintaining macroeconomic stability is critical for improving FDI flows into the SSA. For this reason, the study recommends effective monetary and fiscal policies that control inflation and stabilize the exchange rate, among others.