The Role of Spatial Dynamics in the Determination of Foreign Direct Investment Inflows to Africa

Unlike the study of the determinants of FDI to Africa which has attracted some attention, the possible impact of neighboring nations on proximate nation's ability to attract FDI has largely been ignored. The omission of spatial effects regardless of estimation methodology may lead to biased estimates. Using panel data on African countries, we test for local spatial linkages in FDI inflows to Africa. We investigate if spatial linkages are created by geographic, cultural, environmental and business environment proximities. We find that all proximity weights generate statistically significant spatial linkages except for the case where the weight is a combination of regional trade agreements and distance.