Foreign Direct Investment an Engine for Development: Factors Determining Its Inflow to the Sudan

Abstract

The study was carried out to establish the possible factors that determine the inflow of Foreign Direct Investment into the Sudan. Using OLS and annual time series data for the period 1980 to 2011, the study established that variables that determine inflow of FDI both in the long-run and short-run for the Sudan are the market size and the level of development. While infrastructure development and financial sector development have been the determining factors for the FDI flow to the country in the long-run, they do not posses any effect on the FDI flow into the country in the short-run. Additionally, inflation as a proxy for macroeconomic instability and openness of the economy to the out side world have been effective in determining the inflow of the FDI to the Sudan in the short-run but do not have any impact on the FDI flow to the country in the long run. The ECM term in the short-run dynamics shows that FDI was above its equilibrium value and has been moving downwards towards its equilibrium value, however, with low speed of adjustment towards its equilibrium value. As much as the study succeeded in attaining its objectives, the study suffers from lack of data for some variables and this has reduced the findings of the study. Additionally, with the break away of southern part of the country (now South Sudan), coupled with the civil war in the country, Sudan is likely to lose out foreign investors.