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Management International Review
Published in: Management International Review 3/2020

14-05-2020 | Research Article

Foreign Direct Investment to Africa: Is There a Colonial Legacy?

Authors: Keith W. Glaister, Nigel Driffield, Yupu Lin

Published in: Management International Review | Issue 3/2020

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Abstract

To provide new understanding of the effect of historical ties in the field of international business, through the lens of institutional theory and the concept of the liability of foreignness, we examine how prior colonial relationships influence inward FDI from former colonisers to their former colonies in Africa. With an estimation based on a balanced panel of annual observations from 2001 to 2012, we find that prior colonial ties are positively related to inward FDI from colonisers to former colonies. However, there is substantial heterogeneity in colonial relationships, with the nature of British colonialism more likely to exhibit the colonial relationship in explaining inward FDI. Moreover, there is ambiguity associated with the influence of the time period of colonization and the time period of independence on inward FDI. We report a negative relationship between the period a country was a colony and FDI from the coloniser and a U-shape relationship between the period of independence and FDI from the coloniser. Our findings indicate that the nature and influence of colonial ties on FDI from colonisers are more nuanced and complex than previously considered.
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Appendix
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Footnotes
1
Established in 1870, the Commonwealth is a voluntary association of 54 countries (formerly under British rule) including the UK. The Commonwealth aims to promote democracy, facilitate international negotiations between member countries and promote economic and social development (http://​www.​thecommonwealth.​org).
 
2
As such the μi term includes the standard individual level heterogeneity that is a common problem with gravity models and is addressed using the fixed effects estimation. This is in itself a restriction of the more general γit term, and this restriction of fixed effects rather than random effects is tested using a Hausman test in the usual way.
 
3
There are many variables that are added to the baseline gravity model in the literature, to test for example short run economic shocks, or the importance of infrastructure. We employed numerous other variables in our estimation, including inflation, differing measures of institutions, infrastructure, and exchange rates These neither improved the specification or changed qualitatively any of our results. Our emphasis was to generate a parsimonious gravity equation, building for example on Matyas (1998) or Chaney (2008), and then to augment with our colonial variables of interest. To validate this, we performed standard variable addition tests, and the hypothesis that these variables may be excluded is not rejected.
 
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Metadata
Title
Foreign Direct Investment to Africa: Is There a Colonial Legacy?
Authors
Keith W. Glaister
Nigel Driffield
Yupu Lin
Publication date
14-05-2020
Publisher
Springer Berlin Heidelberg
Published in
Management International Review / Issue 3/2020
Print ISSN: 0938-8249
Electronic ISSN: 1861-8901
DOI
https://doi.org/10.1007/s11575-020-00415-w

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