Does Institutional Quality Matter Foreign Direct Investment? Evidence from African Countries

This study examines the effect of governance on the attractiveness of FDI through a sample of 41 African countries. We contribute to the literature by using various measures of institutional quality to identify the institutional quality aspects that affect the attractiveness of FDI in African countries. We use both the static panel data approach (fixed effect (FE) and random effect (RE)) and the dynamic panel approach (GMM in system). The empirical results show that the attractiveness of FDI to African countries is positively correlated with the control of corruption, the effectiveness of governments, the quality of regulation, and the voice and accountability. The results of this study imply that the dynamics of the modern economy requires African countries to improve the dimensions of governance and establish good governance practices.