Global Economic Uncertainty and Foreign Direct Investment: Evidence from Sub-Saharan Africa

Abstract

Given Africa’s relatively low success in attracting foreign direct investment inflows (FDI) over the past decades, particularly during times of global crises and high uncertainty, this study examined two key areas, which are the impact of global economic uncertainty on FDI inflows and the asymmetric relationship between FDI and global economic uncertainty in Sub-Saharan Africa. Our control variables are trade openness, gross domestic product, capital formation and market size. We used panel Auto-regressive Distribution Lag framework modelling and a panel of 21 countries from Sub-Saharan Africa over the period 1990-2023. Our result suggests an inverse but significant relationship exists between FDI and uncertainty, and the control variables positively intensify against mitigating the phenomenon. Based on the formal test of asymmetry, the outcome further indicates the existence of asymmetry in the long run. Overall, the study advocates the need to manage the extent of global uncertainty on the economic agent, such as FDI in Africa, in order to reduce the excruciating impact.