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for the slow capital inflow to capital scarce countries. Singh and Jun (1995) empirically

analyze several factors and conclude that a country’s orientation toward exports is the

strongest variable for explaining why a country attracts FDI.

Thomas and Worral (1994) address the effect of uncertainty through security risk

in a dynamic context.3 Their findings suggest that such risks are capable of lowering

current capital inflow. For the case of developing countries, uncertainty through security

risks, macroeconomic policy instability and political risks are major concerns of potential


Concerning research on the determinants of FDI in WAMZ, there appears to be a

dearth of literature.5 The few literature on FDI in Africa as a whole include Schoeman et

al (2000) who focus on South Africa, Morrissey (2000) on Africa, Asiedu (2002) on Sub-

Saharan Africa, Egwaikhide et al (2005) on the WAMZ countries. A common perception

of all these studies is that FDI to Africa is driven by availability of natural resources,

mainly solid minerals and crude oil. This has severe policy implications. If this is true,

then FDI in the region is largely determined by an uncontrollable factor. In addition, it

suggests that countries that do not have natural resources will attract very little or no FDI

regardless of the policies they adopt (Asiedu, 2005). Asiedu, using a panel data for 22

countries in Sub-Saharan Africa over the period 1984-2000, shows that macroeconomic

stability, efficient institutions, political stability and a good regulatory framework have a

positive impact on FDI. By implication, this study has carved out a role for government.

3 Similar studies that used different methodologies and data sets to show the impact of uncertainty on FDI include the studies by Abel (1983) Aizenman and Marion (1996), Lehmann (1999) and Huizenga (1993) The role of government policy as a determinant in attracting FDI is also addressed in Teece (1985), Mudambi (1993) and Dunning and Narula (1996). For an extensive survey on the determinants of FDI, see Gastanaga et al (1998) and Chakrabarti (2001). 4 5


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