Determinants of Foreign Direct Investment Flows to Francophone African Countries: Panel Data Analysis

Abstract

This paper used yearly secondary data from 25 African francophone countries covering the period 2004-2012 to examine the factors that deter or attract foreign direct investment (FDI). Strength of minority investor protection in the country, the time required to start a business in terms of days from Doing Business Website are introduced in the model. We use 6 empirical determinants of FDI such as the growth rate of Gross Domestic Product, exports in goods and services, official exchange rate, domestic credit to private sectors, information and communications technology defined by the number of internet users, political stability and absence of violence. A Hausman test was performed and the results from the test suggested the use of fixed effect model. The results from regression with time and country fixed effects show that export in goods and services, internet’s users, official exchange rate, political stability and absence of violence estimate, the time required to start business in the country have greater influence on FDI. Development of the private sector can contribute to take up this challenge of attractiveness of FDI. It is very important for Francophone countries to encourage the development of sustainable private enterprises by granting of credits.

Keywords: FDI, Time fixed effects, Countries fixed effects, Francophone African countries