Determinants of Foreign Direct Investment in the Southern African Development Community (SADC)

Abstract

This paper examines the determinants of FDI inflows to the Southern African Development Community (SADC)²¹ using data for the period 1990 -2007. The pooled ordinary least squares and panel least squares methods were used for estimation. The results show that the FDI inflows to SADC are positively and significantly related to gross fixed capital formation, total external debt service, inflation, the lagged value of FDI, and domestic credit to the private sector. The analysis also shows that FDI inflows to SADC are negatively and significantly determined by the low level of infrastructure development, and the lagged value of inflation. Therefore, the paper recommends enhanced regional integration and development in SADC, because this can increase the market size and making the region more attractive to FDI, and boost the positive determinants of FDI to the region. Enhanced regional integration and development can also dampen the negative effects on FDI, of such factors as chronic and hyper-inflation, poor infrastructure, civil unrest and war.

Keywords: SADC, foreign direct investment, market size, regional integration, economic growth, development.

Botswana Journal of Economics vol 9 (13) 2012