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Journal of Economics and Finance

Erschienen in:

08.06.2019

Remittances, market size, and foreign direct investment: a case of sub-Saharan Africa

verfasst von: William A. Amponsah, Pablo A. Garcia-Fuentes, Joseph A. Smalley

Erschienen in: Journal of Economics and Finance | Ausgabe 2/2020

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Abstract

This study covers the period 1981–2014 and uses an unbalanced panel data set for 85 developing countries. It assesses the effect of remittances through per capita GDP on FDI inflows to Sub-Saharan Africa (SSA) and compares its performance in attracting FDI with the other developing regions. The results show a positive effect of remittances on FDI, but it depends on the level of per capita GDP of the host country. That is, an increase in remittances by one standard deviation, on average, increases FDI inflows by 0.09% a year. Remittances have a positive effect on FDI in 43 countries, and eight of them are in SSA. In addition, a SSA country receives about 0.8% more FDI than the average country in ASIA, but there is no difference between SSA and Latin America and the Caribbean, and SSA and the Middle East and North Africa. Further, the growth rate of the host country’s GDP has a positive effect on FDI, which supports the market size hypothesis.

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The International Monetary Fund (IMF) defines FDI as an investment that represents at least 10% of voting stocks in an enterprise operating in a country other than that of the investor. In this study, FDI is net inflows of FDI as share of host country GDP and represents at least 10% of voting stock. It is the sum of equity capital, reinvestment of earnings, and other long term and short-term capital.

Remittances are the sum of personal transfers and compensation of employees as defined in the sixth edition of the IMF’s Balance of Payments Manual.

A host country is a recipient of FDI.

Moosa’s (2002) chapter 2 provides a description of the theories of FDI.

Appreciation of the host country’s currency against the U.S. dollar is expected to negatively affect FDI inflows.

The threshold for per capita GDP is its log value that makes the sum of remittances and the interaction term positive, or \( \mathit{\log}\ GDP\ per\ capita\kern0.5em \ge \left(-\frac{\beta_{remittances}}{\beta_{remittances\ast GDPpc}}\right) \). However, if the two coefficients are positive (negative), remittances have an unambiguously positive (negative) effect on FDI inflows.

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Titel: Remittances, market size, and foreign direct investment: a case of sub-Saharan Africa
verfasst von: William A. Amponsah
Pablo A. Garcia-Fuentes
Joseph A. Smalley
Publikationsdatum: 08.06.2019
Verlag: Springer US
Erschienen in: Journal of Economics and Finance / Ausgabe 2/2020
Print ISSN: 1055-0925
Elektronische ISSN: 1938-9744
DOI: https://doi.org/10.1007/s12197-019-09484-6

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