A Dynamic Panel Analysis of the Determinants of FDI in Africa

Numerous studies have examined the determinants of FDI. However, due to sample selection and research methodology, there continues to be mixed and inconclusive evidence of both the significance and direction of impact of changes in the determinants on FDI. We apply the GMM technique to dynamic panel analysis and identify the determinants of FDI (in proportion to GDP) for 35 African countries for the period 1974-2009. Granger causality indicates short-run causal effects from domestic investment, external debt and government spending to FDI. Johansen cointegration test indicates significantly positive long-run effects of domestic investment and trade openness on FDI.