THE NEXUS BETWEEN FOREIGN DIRECT INVESTMENT
AND FOREIGN AID: AN ANALYSIS OF SUB-SAHARAN
AFRICAN COUNTRIES

Kafayat Amusa
University of Pretoria and University of South Africa

Nara Monkam
African Tax Administration Forum

Nicola Viegi
University of Pretoria

 

ABSTRACT

Funding constraints experienced by sub-Saharan Africa (SSA) countries have led to reliance on foreign direct investment (FDI) and foreign aid as alternative sources of finance. Despite the importance of FDI for growth and development, SSA’s share in global FDI inflows trails that of other developing regions. This study examines the role of foreign aid in enhancing FDI inflows to 31 SSA countries from 1995-2012. Using multilevel analysis, the results suggest that productive infrastructure aid is complementary to FDI inflows and socio-economic infrastructure aid has no significant impact on FDI inflows. Additionally, the results indicate that oil producing countries that receive both productive sector and socioeconomic sector aid receive less FDI when compared to non-oil producing SSA countries.