THE EFFECT OF SOCIAL PROGRESS ON FOREIGN DIRECT INVESTMENTS: A DYNAMIC PANEL DATA ANALYSIS FOR AFRICAN COUNTRIES

Abstract

A strand in the empirical literature on development economics investigates the dependence of foreign direct investments on recipient countries' economic, institutional and structural characteristics. This paper builds upon this literature by examining the role of a country's social progress as a pull factor for inward foreign investments.  It applies the dynamic panel data methodology to an unbalanced panel dataset from African countries for the 2011-2019 period. The findings suggest that social progress is a significant determinant of foreign direct investments in Africa, supporting a positive social progress-foreign direct investments nexus. For the dimensions of social progress, while access to basic needs and foundations of well-being are important factors, opportunity exhibits superior influence on foreign direct investments. Findings provide evidence for a policy that recognises the social progress in shaping a host country’s attractiveness to foreign investments.