Foreign Direct Investment in Zimbabwe: The Role of Uncertainty, Exports, Cost of Capital, Corruption and Market Size

J Muzurura
2019 The Economics and Finance Letters  
Article History Keywords FDI Uncertainty Corruption Market size Public infrastructure Zimbabwe. JEL Classification: D84, E22, E32, F23. Most of developing countries such as Zimbabwe see foreign direct investment as a panacea for augmenting domestic savings, generating employment, eradicating poverty and stimulating economic growth. Foreign direct investment also is associated with significant positive spillover benefits such as; facilitating technological progress, enhancing production
more » ... production efficiencies, promoting skills and knowledge diffusion and increasing international competitiveness. The paper investigated the role of cost of capital, uncertainty, exports, market size and other macro factors in attracting FDI in Zimbabwe. This paper relied on a time series analysis using Ordinary Least Regression equation for the period 1998-2017. Uncertainty and cost of capital were found to be negative and statistically significant whilst market size and lagged exports were found to be positive and statistically significant. The paper recommends adoption of policies that improve domestic absorptive capacity such as the elimination of uncertainties in the economy, promoting more trade openness, improving market size and liberalisation of credit and financial markets to reduce firm borrowing costs. Contribution/Originality: This study contributes to the existing literature on foreign direct investment by demonstrating the role of macro-uncertainty and cost of capital in attracting FDI. In addition, this study utilizes a new estimation methodology of FDI that is based on the modification of the flexible accelerator model of investment behaviour. portfolio equity, brownfield investments, official development assistance, long-term and short-term loans and diaspora remittances. Unlike other developing countries, nevertheless, FDI inflows in Zimbabwe has also been one
doi:10.18488/journal.29.2019.61.9.24 fatcat:aghthdcvunekvfqq5jqscysuuy