Geographical and Policy Factors in Foreign Direct Investment Inflows to Africa

This paper analyzed the geographical and policy factors determining Foreign Direct Investment (FDI) inflows to four regions of Africa over the period 1980 to 2010. Based on the eclectic paradigm, a gravity model and threshold procedure, the paper found that geographical factors were the main attraction for FDI inflows to most regions of Africa. However, FDI would flow more to countries with lower level of inflationary tendencies. This pattern cuts across different models. Fiscal deficit ratio of less than 3.3% and inflation rate of less than 10% maximized the geographical advantage. Beyond these thresholds, FDI inflows to Africa appeared discouraged.