Democracy and FDI inflow: Evidence of discordance in Sub-Saharan Africa

The political environment of a host country plays a vital role in MNCs strategic decision making process in terms of investment placement and allocation. Recent literatures have had conflicting arguments on the impact of a host country government on FDI inflows. The different forms of democracies in the world today create an ultra ambiguous interpretation of the term "Democracy". It becomes increasingly more difficult to agree on a universally acceptable definition, as more forms of democracy emerge around the world. In this paper, we investigate the influence of democracy on FDI inflow in Sub-Saharan Africa. The results suggest that as Sub-Saharan countries progress towards a stronger and more efficient democracy FDI inflow declines. We also tested for the impact of education on FDI inflow; our results suggest that as the quality of basic education improves in Sub-Saharan African countries, FDI inflow reduces. This finding might be explained by the positive association of education with both economic and human development. As the society becomes more educated and developed, its policies and overall orientation is channeled towards its domestic productivity and economic growth, and as a result becomes more resourceful. The harmonized interest of the host country now supersedes the profit maximization interest of the MNCs. This environment becomes less attractive to MNCs as their exploitative profit margin shrinks. © EuroJournals Publishing, Inc. 2011.