Home

>

Foreign aid and foreign direct investment in Sub-Sahara Africa: A panel data analysis

This study examines the relationship between foreign aid and foreign direct investment (FDI) in 31 sub-Saharan African (SSA) countries between 1995 and 2012. Significant resource constraints have meant increased reliance on external sources of funding such as foreign direct investment and foreign aid (ODA) for many sub-Saharan African countries. FDI is considered to be a more stable financial flow compared to foreign aid, and the means of attracting increased FDI flows to the region remain a topical issue in development studies. Research focus has also beamed staidly on the linkages between FDI and foreign aid in the foreign aid discourse. This is especially significant because the continued sluggishness of FDI inflows coupled with volatility in aid flows means that SSA faces increasing pressures to access innovative means of generating crucial resources for development.  The study sought to answer three specific questions; first, does foreign aid enhance FDI inflows into SSA countries? Second, is the nexus between foreign aid and FDI uniform across oil endowed and non-oil endowed SSA countries? Lastly, is sectoral analysis important in the examination of the effectiveness of foreign aid? Using panel data estimation techniques, the results suggest that productive infrastructure aid is complementary to FDI inflows and socio-economic infrastructure aid has no significant impact on FDI inflows. When resource (oil) motive of FDI is considered, the results indicate that productive and socio-economic infrastructure aid to oil-producing SSA countries results in less FDI inflows compared to non-oil producing SSA countries. Finally, findings from the sectoral aid analysis highlight the complementary role of energy infrastructure aid and an insignificant impact of transport infrastructure aid on FDI inflows respectively.

Research Brief 89
1 October 2016
SHARE THIS Policy Brief PUBLICATION:

Related South Africa’s Cities and Growth Spatial Challenges and Policy Interventions Content

Request for Proposals: The role of cities as drivers of growth and employment
Background Urbanization in South Africa is expected to reach 80% by...
Call for Work
South Africa’s future will be decided in our cities
Discussion Document 14 South Africa’s cities face multiple, overlap...
Dieter von Fintel, Justin Visagie, Ivan Turok, Takwanisa Machemedze, Claus Rabe, Sebastian Galiani, Edward Glaeser
Discussion Document
Monitoring South Africa’s metropolitan economies: A survey of the data landscape
Discussion Document 13 Disparities in data across different metropo...
Dieter von Fintel
Discussion Document
Cities, productivity and Jobs in SA: Problems and potential
Discussion Document 12 Cities contribute to national prosperity bec...
Ivan Turok, Justin Visagie
Discussion Document
Place-based economic policies: international lessons for South Africa
Discussion Document 11 Place-based policies are designed to support...
Harris Selod, Claus Rabe
Discussion Document
What luminosity data can and cannot reveal about South Africa’s urban economies
Discussion Document 10 As novel types of data are becoming availabl...
Takwanisa Machemedze
Discussion Document
Crime: A policy-oriented survey
Discussion Document 9 South Africa has a reputation for having high...
Sebastian Galiani
Discussion Document
Virtual CDE Workshop on SA Cities and Growth
Urban economics has provided powerful insights into how the charact...
Workshop

Search Resources

Ground Floor Brookside Building
11 Imam Haron Road
Claremont, 7700
Cape Town

PostNet Suite # 109
Private Bag X1005
Claremont 7735
Cape Town

Get Social