Determinants of Us Fdi and Economic Growth in Sub-Saharan Africa

This thesis consists of two separate studies as follows. The first study uses macro panel data on US FDI in developed countries during 1982-2010 to empirically investigate the influence of host country characteristics on FDI. Differing from earlier panel data studies on FDI determinants which often impose the (standard) restrictions of the homogeneity of slope coefficients on the observed variables and the homogeneity of the factor loadings on the unobserved common factors in the empirical specification, this study uses the recently-introduced Common Correlated Effects Mean Group estimator to allow the effects of observed variables and unobserved common factors to vary across countries. In this research, the data seem to support the empirical specification allowing for slope heterogeneity across countries rather more than the standard ones imposing the restrictions of slope homogeneity. Empirical results indicate that the stock of US FDI in a given FDI recipient is likely to be significantly determined by market size, the fluctuations of the exchange rate, and risks in terms of the investment climate, corruption and the legal environment of the host country. The second study uses an efficient two-step system GMM estimator with Windmeijer-corrected standard errors to test the human-capital augmented Solow model (HCASM). Empirical results in this study confirm conditional convergence as the HCASM predicts. However, the rate of convergence found ranges from about 0.3 to roughly 1 per cent a year, which is slower than found in previous cross-country research. The effect of the investment rate on the level of the growth path is found to be significant while that of the level of human capital is insignificant. Besides, this study finds that the HCASM seems to be unable to fully account for the contrasting growth of countries in sub- Saharan Africa and East Asia even when country-specific effects and endogeneity are taken into account. Further, the evidence indicates that the rates of technological progress between the two regions are likely to be different and this may help to explain the contrasting growth performance experienced by sub-Saharan African and East Asian countries.