Foreign Direct Investment, Institution and Industrialisation in Sub-Saharan Africa

Empirical studies have been conducted around the impact of foreign direct investment on industrialisation; however, while they have produced inconsistent inferences, the impact channel of this relationship has also been ignored. This study focuses on the role of institution on foreign direct investment for industrialisation in a panel of 43 Sub-Sahara African countries for the period 1996 through 2018. This study uses manufacturing value added per capita to capture industrialisation and based its empirical evidence on the pooled ordinary least squares, fixed effects and system generalised method of moments methods of estimation. From our empirical analysis, the following findings are established: First, persistence level of industrialisation determines to a large extent, the current industrialisation in sub-Saharan Africa. Second, foreign direct investment exerts a negative and significant impact on industrialisation. Last, when indicators of institution are imposed on foreign direct investment in our model, the negative impact existing between foreign direct investment and industrialisation remains apparent except for the political index of institution that moderates and averts this negative effect although the magnitude is meagre. On the policy ground, this study advocates for institutional policies and reforms that targets economic, political and institutional forms of governance.