Abstract:
This article examines the linkage between institutional quality (IQ) performance
and foreign direct investment (FDI) inflows in 45 African countries from 2010 to
2019. The study moderates this relationship by ease of doing business (EDB)
which reflects friendliness of the country’s business environment. In addition,
disparities in terms of IQ, EDB and FDI between African countries in different
geographical regions and economic development groups are examined. ANOVA
and Post-hoc ANOVA results firstly reveal significant variations in between
African countries in terms of IQ, EDB and FDI inflows with the Southern and
Northern African regions appearing to perform better. The fixed effects
regression estimation results show significant disparities in inward FDI, IQ and
EDB between different African regions and countries at different levels of
economic development. The results secondly depict unidirectional predictive
power of IQ indicators and EDB on FDI inflows. In addition, the study finds
insignificant linear relationship between IQ indicators and FDI inflows except
for rule of law and control of corruption. Moreover, the findings reveal that the
impact of these two (2) indicators on FDI inflows is strengthened by EDB. This
study adds to existing knowledge since extant literature on the linkage between
IQ and FDI inflows has generated mixed findings. Moreover, the role of EDB on
the linkage between IQ and FDI inflows has seldom been studied. The findings
emphasize the need for policy makers in African countries to work towards
combating corruption and improving rule of law while creating conducive
business climate for foreign investors.
