The Role of Productive Structures in the Attractiveness of African Economies: A “Lucas Paradox” Approach

Abstract

The purpose of this article is to analyze the paradox of atrophy of capital flows to African countries, while economic theories predict that such flows of investment should be large enough because of higher returns on capital in countries where its presence is relatively low in production factors. The GMM estimate of a system of two equations for a sample of 25 African countries over the period 2004-2014 gives the following results: the low investment flows are due to the production structures of African economies, which lack efficiency and attractiveness. Also, by improving the structural elements of the economy that render production ineffective, African countries can thus increase their potential to raise larger flows of foreign direct investment.