X hits on this document

62 views

0 shares

0 downloads

0 comments

3 / 32

1. Introduction

Investment in capital is an important ingredient in the growth process. Countries lacking

capital accumulation and technological progress usually grow much slower than countries

with high investment rate and huge research and development (R & D) expenditures.

Through foreign direct investment (FDI), Multinational Corporations (MNCs) can

provide countries with both capital and new technology. Indeed, some recent studies

conclude that FDI has been one of the most effective means of transfering technology and

knowledge (Addison et al, 2004; UNCTAD, 2003; Dunning and Hamdani, 1997).

However, most African countries exhibit features which make them unattractive

to

private

investors,

especially

foreign

direct

investment.

First,

given

the

high

dependence of these countries on exports of a few primary commodities, they are

susceptible to external shocks especially terms of trade shocks. Second, their reliance on

agriculture exposes them to such natural shocks, as droughts and floods, with severe

adverse effect on the economy. Unquestionably, these features sum up to make the

region a high-risk zone. Third, most of these countries have underdeveloped financial

sector

and

low

credit

ratings.

The

absence

of

information

and

the

prevalence

of

ignorance make the region vulnerable to sudden shifts in market perceptions and they are

well

exposed

to

contagion

effects

(Morrissey,

2003).

Lastly,

the

persistent

budget

deficits emanating from a weak tax system signify severe constraints on government

resources and impede government’s ability to address shocks and instability. Thus,

African countries seem trapped in a vicious cycle of instability, low private capital flows

and poor economic performance.

2

Document info
Document views62
Page views62
Page last viewedFri Dec 02 21:07:19 UTC 2016
Pages32
Paragraphs1306
Words8354

Comments