Despite economic and institutional reform in Africa during the past decade, the
flow of Foreign Direct Investment (FDI) to the region continues to be
disappointing and uneven. In this study we use the fixed and random effects
models to explore whether the stylized determinants of FDI affect FDI flows to
Africa in conventional ways. Based on a panel dataset for 29 African countries
over the period 1975 to 1999, the paper identifies the following factors as
significant for FDI flows to Africa: economic growth, inflation, openness of the
economy, international reserves, and natural resource availability. Contrary to
conventional wisdom, political rights and infrastructures were found to be
unimportant for FDI flows to Africa. The significance of a variable for FDI
flows to Africa was found to be dependent on whether country- and time-specific
effects are fixed or stochastic.
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