THE IMPACT OF INTEREST RATES ON INBOUND FOREIGN DIRECT INVESTMENT IN AFRICA

Capital chases higher returns and African countries continuously strive to implemet effective policies to attract more Foreign Direct Investments (FDI). Agianst this backdrop, we explore the relationship between interest rates FDI inflows in Africa and how exchange rates and unemployment distinctively affect that relationship. We employ a panel data on the six major FDI-inflows hub economies in Africa for the period 1990-2017. By the justification of the Hausman test, the random effect model was used in this study. We bring to the forefront that interest rates have a statistically significant positive impact on FDI inflows. Also, the results indicate that when exchange rates interact with interacts rate the effect of the latter on FDI is less positive especially in economies where exchange rates are high. On the other hand, when unemployment interacts with interest rates the impact of the latter on FDI is more positive. We conclude that policies that stabilize exchange rate and increase labour development should be fortified if an African economy wants to achieve and sustain long term inflows of FDI.