Foreign Direct Investment by Emerging Market Multinationals in Africa: Impact on Domestic Capital Formation
Author(s):
Zelealem Yiheyis, Emmanuel Cleeve
and Valeria Andreoni
Article history:
Received: 20 May 2022
Accepted: 10 May, 2023
Abstract:
Foreign direct investment (FDI) flows within developing countries are rising. This article investigates whether FDI from emerging markets (EM) contributed to the domestic capital formation in Africa and how this compares to flows from developed countries. Fixed-effect estimates, based on panel data drawn from African countries covering the 2001-2012 period, suggest that total FDI and FDI from developed countries exerted favourable short-run and cumulative effects on total gross fixed capital formation (GFCF). We find that the effect of FDI from BRICS is significantly positive at least in the short run, while the average effect of FDI from other developing and transition economies is neutral. The indirect evidence of the crowding-in effect on private domestic investment by local enterprises is mixed. The results point to the relevance of the quality of institutions and extractive-sector activity in host economies as mediating factors between FDI and GFCF.
Keywords:
Africa; Emerging Markets; Foreign Direct Investment; Gross Fixed Capital Formation
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