NETWORKING FOR FOREIGN DIRECT INVESTMENT IN AFRICA: HOW IMPORTANT ARE ICT ENVIRONMENT AND FINANCIAL SECTOR DEVELOPMENT?

Abstract

Studies on the drivers of Foreign Direct Investment (FDI) in Africa have not rigorously examined whether recent advances in the continent’s Information, Communication and Technology (ICT) infrastructure and financial development have any role in attracting foreign capital. This study re-examines the determinants of FDI inflows, paying special attention to the ICT and financial sector environments. By relying on a panel dataset covering 46 countries in sub-Saharan Africa over the period 1980~2016, using the generalized method of moments (GMM) method, our study shows that well–developed ICT infrastructure robustly spurs FDI regardless of the measure of ICT. On the other hand, the impact of domestic financial development on FDI is conditioned on the proxy of finance. Specifically, while domestic (private) credit to GDP inhibits (promotes) foreign capital inflows, higher levels of ICT in the environment dampen the deleterious effect of finance on FDI. We document the threshold levels of ICT necessary to exert such dampening effects.