FISCAL INCENTIVES FOR FDI AND INFRASTRUCTURE
DEVELOPMENT: ECONOMIC DIVERSIFICATION
OPTIONS FOR SADC COUNTRIES

 

Olalekan Yinusa
Obafemi Awolowo University

 

ABSTRACT

This paper attempts to investigate the effects of fiscal incentives on manufacturing Foreign Direct Investment (MANFDI) in 13 Southern African Development Community (SADC) countries for the period 1995 to 2007. Using pooled ordinary least squares (POLS) and panel least squares estimation techniques, the results indicate that availability of infrastructure, skilled labour, and degree of openness of the economy are significant drivers of MANFDI to SADC region. However, taxes on international trade, overvalued real exchange rate and macroeconomic instability have negative effects on MANFDI. Fiscal incentives alone are not significant determinants of MANFDI to SADC. However, fiscal incentives interacting with infrastructure are positively significant in explaining MANFDI. The paper concludes that in seeking to attract manufacturing FDI to SADC, priority should be given to infrastructure development and exchange rate policy design and management to avoid loss of competitiveness. Fiscal incentives are only complementary.