Do Market Size and Remittances Explain Foreign Direct Investment Flows to Sub-Sahara Africa?

Abstract

The paper analyzes the effect of remittances in attracting foreign direct investment (FDI) to Sub-Saharan Africa (SSA). We apply an unbalanced panel data set for 40 African countries for the period 1981–2013. The results indicate positive and significant impacts of remittances on net FDI inflows to SSA conditioned on the level of per capita GDP in the host country. Therefore, a threshold of per capita GDP is needed for a SSA country to benefit from the positive impact of remittances on net FDI inflows. In addition, host country demand positively affects net FDI inflows to Africa, which supports the market size hypothesis.