Exploring the Determinants of Foreign Direct Investments coming from Europe the United States & China to Countries in sub-Saharan Africa

Christopher Luca Reitz & Mareike Franziska Jung

Student thesis: Master thesis

Abstract

This thesis explores the determinants of foreign direct investments (FDIs) from European, American and Chinese investors into countries in sub-Saharan Africa (SSA). Hereby, similarities and differences in the investment causes among these three investor groups are identified. The investigation is conducted via a panel data analysis of 48 countries in SSA over the time period from 2006 to 2017. The analysis is prompted by the issue of SSA’s low global participatory share of FDIs. Although Chinese companies have increased investments into the region over the recent years to become one of the biggest investor groups apart from the more traditional investors from Europe and the US, the issue of the low share of global FDI flows remains. Therefore, this thesis identifies the main drivers of FDIs influencing these three investor groups. The analysis identifies that the three investors are positively influenced by the infrastructural development of an SSA country while a higher inflation constitutes a negative impact on FDIs. Moreover, trade openness positively influences FDIs to countries in SSA as well. The results further indicate that the effect of a large natural resource rent on FDI flows decreases with an increase in an SSA country’s trade openness. A disaggregation into the three investor groups shows the origins of these results and points out the differences in the determinants for each group. Besides some economic factors, American investors are also influenced by political measures when establishing FDI decisions. On the other hand, European and Chinese investors solely focus on economic, yet miscellaneous factors. Drawn from these findings, formulated policy implications support decision makers of the SSA countries to create strategiesthat foster a positive development of FDI flows. Thus, they can address the issue of the low global FDI share of SSA countries.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2019
Number of pages161
SupervisorsPhillip C. Nell