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The central concern of this paper is to respond to the question: why do
FDI inflows go where they do in African countries? An understanding of such
factors will assist African policymakers to formulate and execute policies for
attracting FDI. Our estimation results from cross-country regressions for the
period 1996-2008 indicate that: (i) there is a positive relationship between
market size and FDI inflows; (ii) openness to trade has a positive impact on
FDI inflows; (iii) higher financial development has negative effect on FDI
inflows; (iv) the prevalence of the rule of law increases FDI inflows; (v) higher FDI goes
where foreign aid also goes; (vi) agglomeration has a strong positive impact on
FDI inflows; (vi) natural resource endowment and exploitation (such as oil)
attracts huge FDI; (vii) East and Southern African sub-regions appear positively
disposed to obtain higher levels of inward FDI. The key policy implications
are discussed.
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