Institutions, Foreign Direct Investment and Domestic Investment in Sub-Saharan Africa

Abstract

The study examines the effects of institutions and foreign direct investment on domestic investment in Sub-Saharan Africa (SSA) from 2006-2017. To achieve the objectives of the study, fixed and random effects estimation techniques were employed on annual panel data of 28 countries in Sub-Saharan Africa. Institutional variables (institutions) were found to have positive effects on domestic investment in SSA. Good institutions, therefore, contribute to increasing domestic investment in SSA. Again, the results indicate that an enhancement of government effectiveness in the presence of foreign direct investment, domestic private investment increases. The results also disclosed that institutions in general have positive effects on domestic private investment. The study, therefore, recommends that governments of SSA through their respective public and civil services should ensure the improvement of institutions in their respective countries to serve as a conduit for enhancing domestic investment in the subregion.