The Relationship Between Ease of Doing Business Indicators and Foreign Direct Investment in Africa

Abstract

This study examines the impact of the business environment on foreign direct investment (FDI) inflows into Africa, utilising panel data from 39 African countries over the period 2005–2019. Institutional and regulatory dimensions are captured through selected indicators from the World Bank’s Ease of Doing Business Index. A dynamic panel data approach is employed, applying the one-step difference Generalised Method of Moments (GMM) estimator to address potential endogeneity, autocorrelation,  and unobserved heterogeneity. The results indicate strong persistence in FDI, with lagged inflows exerting a significant positive effect on current levels. Among the business environment indicators, registering property is positively and significantly associated with FDI, highlighting the importance of secure property rights. Conversely, getting credit shows a significant negative relationship, suggesting that inefficiencies in credit markets may deter investment. These findings underscore the need for policy reforms aimed at streamlining property registration and enhancing credit market infrastructure to foster a more conducive environment for sustained FDI inflows and economic development.