Can FDI Improve the Socio-Economic Conditions in African Countries?

Mobilising resources via foreign direct investment (FDI) has become an important channel to achieve economic progress in African countries due to a lack of domestic resource mobilisation. Along with its recent socio-economic expansion and increasing integration into the global economy, Africa has experienced major developments in inward FDI. The question then arises whether the increase in FDI inflows has contributed to the improved socio-economic conditions in African countries, in terms of providing a better quality of life and employment prospects. By empirically analysing data from the Financial Times (fDi Markets) and World Bank (Open Data) using instrumental variable (IV) estimation over 2003-2017, this study finds that FDI can contribute to improving the quality of life and employment prospects of people living in African countries. There is also evidence that the type of FDI conducted matters for job creation as well as the relative employment rates of women in Sub-Saharan Africa (SSA). Only when FDI is labour-intensive, do positive direct employment effects exist while there is no evidence of indirect spillover effects. The results from this study bring to light the skills gap that exists in the continent, in which a lack of skills prevents African countries from reaping the employment benefits associated with more skills-demanding (knowledge-intensive) FDI. Remarkably, women in SSA seem to be an exception and are actually able to gain from knowledge-intensive FDI activities brought in by multinational enterprises (MNEs).