Foreign direct investment and natural resources in sub-Saharan Africa: the role of institutions towards the Africa we want “2063 Vision”

Abstract

This study examines the mediating effect of institutions on the relationship between natural resources and FDI inflows using the panel data of 46 Sub-Saharan Africa countries over 2000- 2015. The panel unit root tests by Im, Pesaran and Shin and Fisher type are employed and results indicate that data are stationary at first difference whereas the Pedroni cointegration tests confirm for the long-run relationship among variables. The GMM estimator is employed to account for the endogenous problems. The initial results demonstrate that FDI-Resources curse exists because natural resources crowd out non-natural resource sectors. Moreover, significant positive relationship between FDI and the interaction variable of institutions and natural resources signify that FDI-Resources curse exist in countries with weak institutions. The findings of this study are important in Sub-Saharan Africa because they enforce institutions and governance to promote sectoral linkages and build economy diversity towards the agenda 2063, “The Africa We Want”.

Keywords: Natural Resources, FDI inflows, Institutions, Sub-Saharan Africa