Aggregated and sectoral analysis of FDI determinants in Africa: the role of infrastructure, financial development, and formal and informal institutions.

Ileola-Gold, VO, 2024. Aggregated and sectoral analysis of FDI determinants in Africa: the role of infrastructure, financial development, and formal and informal institutions. PhD, Nottingham Trent University.

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Abstract

This thesis investigates the determinants of Foreign Direct Investment (FDI) for all African economies, with a particular focus on the roles of infrastructure, institutional quality (both formal and informal), and financial development. Addressing previously underexplored structural factors, the study adopts a multi-method empirical strategy, grounded in the theory of location-specific advantages (North 1990; Dunning 1998). The first empirical chapter (Chapter 3) employs Poisson Pseudo Maximum Likelihood (PPML) e

stimation with country and time fixed effects and panel quantile regression to assess the impact of infrastructure, financial development, and institutional quality on FDI inflows across Africa from 1996 to 2019. The findings indicate that both political and socioeconomic institutions significantly attract FDI, while infrastructural accessibility, measured by electricity access, internet users, gross fixed capital formation, financial efficiency, and market depth also plays a critical role.

Using PPML with country and time fixed effects, the second empirical chapter (Chapter 4) accounts for heterogeneity across Africa economies regions by classifying countries by region (North, Central, East, South, West), income level, landlocked status, political regime, and human development. The results indicate that institutional quality is positively associated with FDI in Northern and Western Africa, as well as in democratic, upper-middle-income and non-landlocked countries, but otherwise is negatively or insignificantly.

The final empirical chapter (Chapter 5) explores the influence of formal and informal institutions on bilateral FDI flows and investment scale from five major source countries China, India, France, the USA, and the UK into 51 African economies across seven sectors: construction, manufacturing, services, banking, infrastructure, mining, and agriculture. Using a Heckman two-stage model (probit and PPML), with logit estimation for robustness, the study finds that formal institutions and institutional distance shape investment location decisions. The sectoral analysis reveals that both formal and informal institutions matter for manufacturing and construction, while only formal institutions influence services. No significant institutional effects are found in banking, infrastructure, agriculture, or mining.

In accounting for absolute and relative institutions as formal institutions, cultural distance as informal institutions, and financial institution depth, access and efficiency into FDI modelling, this research extends existing empirical frameworks to better account for context specific determinants in African economies. In using advance econometric techniques, PPML controls for zeros and heteroscedasticity, fixed effects capture the heterogeneous and complex nature of FDI flows in Africa while quantile regression capture non-linear effect. The findings offer actionable insights for policymakers, highlighting the need for tailored reforms in governance, financial systems, and infrastructure. Sector-specific and investor-sensitive strategies, particularly those addressing institutional and cultural distance, are essential for enhancing Africa’s FDI attractiveness.

Item Type:	Thesis
Creators:	Ileola-Gold, V.O.
Contributors:	Name Role NTU ID ORCID Stack, M. Thesis supervisor ECN3STACKM https://orcid.org/0000-0002-9213-7607 Thompson, P. Thesis supervisor ECN3THOMPP https://orcid.org/0000-0003-1961-7441
Date:	December 2024
Rights:	This research work is the work held by Victoria Ileola-Gold. For non-commercial research, private study, and personal research, you may copy up to 5% of this work. Any reuse of the information contained within this document should be fully referenced, quoting the author, title, university, degree level and pagination. Queries or requests for any other use, or if a more substantial copy is required, should be directed to the author.
Divisions:	Schools > Nottingham Business School
Record created by:	Jeremy Silvester
Date Added:	07 Jan 2026 11:41
Last Modified:	07 Jan 2026 11:45
URI:	https://irep.ntu.ac.uk/id/eprint/54951

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