Determinants of foreign direct investment in the Zimbabwean mining sector

Abstract

Orientation: The mining industry being the main source of foreign currency for economy is the backbone of the Zimbabwean economy. The performance of the sector has been dwindling of late. The downturn has been attributed to outdated equipment, lack of foreign currency to import modern equipment, expensive new technology and general macroeconomic problems. Research Purpose: Given the problems being faced by the sector, this article investigated the determinants of foreign direct investment (FDI) into the mining sector (MS). Motivation for the study: Given the mining sector’s contribution to the economy, understanding what motivates corporates to invest into the sector is of interest to the policy makers. The decline in investment is a cause of concern. Research approach and method: The study employed the autoregressive distributed lag (ARDL) method to evaluate the determinants of FDI into the Zimbabwean MS. Main Findings: The results show that FDI in the MS is driven by gross domestic product (GDP), wage rates, inflation, interest rates and openness in the long term. In the short run, GDP, wage rates, inflation, interest rates and openness have a significant effect on FDI into the MS. Practical implications: This study recommends that government should put in place pro-growth policies in order to attract more foreign investors. The monetary policy should ensure interest rates are maintained very low to allow local resources to complement FDI. Contribution: The study contributes to the literature on determinants of FDI in the mining sector.