Foreign direct investment, institutional quality and business regulatory environment: Evidence from Africa

Foreign direct investment (FDI) plays a significant role in both the economic growth and development of a nation. Given Africa’s development and economic characteristics, FDI is an attractive tool for economic development. Hence, understanding the key drivers of FDI is of major importance to help promote the sustainable development of the private sector. This thesis focuses on the interrelation between two key determinants of FDI inflows: institutional quality and the business regulatory environment, while controlling for economic determinants including the market and resource characteristics of a country. Using a panel of 46 countries for the period 2012-2016, a mediation analysis is employed to examine the relationship between an established governance index, as a proxy measure of institutional quality, using Worldwide Governance Indicators (WGI) and the doing business score developed by the World Bank (WB), as a proxy measure of business regulatory environment. The conditions of mediation analysis were tested using a number of multivariate log-linear regression models. The model is estimated using fixed effect panel regression analysis with robust cluster standard error to account for homoscedasticity and serial autocorrelation. The data on the included variables were gathered from publicly available resources. In line with literature such as Globerman and Sharpio (2002) and Gani (2007), the findings of the study regarding the relevance of governance index for FDI inflows showed a robust, consistent significance using different estimation techniques. However, contrary to the literature such as Piwonski (2010) and Morriz and Aziz (2011), the business regulatory environment did not demonstrate any robust significance to FDI inflows. Though these findings result in a statistical rejection of the main hypothesis, it does not constitute conclusive evidence that the business regulatory environment does not mediate the effect of institutional quality on FDI inflows within the African context. This is due to a concern regarding the validity of the doing business score validity as a proxy for the business regulatory environment. To The 25 Jan Revolution, My Mother, My Sister My Person, & To All the Women and Girls around the world who fight every day for their dreams, their families and their lives. Acknowledgment “Those who pursue a quest for knowledge, Allah shall ease their path to heaven” I would like to start my acknowledgment by expressing my gratitude to Allah for making me start and complete this journey, for being the god who inspires his worshipers to pursue a quest for intellectual exploration. I pray that the knowledge I gained during my journey become of benevolent use for humanity and the research community. I am also thankful to my mother Hasnaa, who always supported my dreams and prayed for me sincerely on whatever quest I pursue; my father Abdelghany, who challenged me during my early years to always become the best version of myself; my siblings Mariam and Mahmoud who always had unquestionable, though sometimes annoying, confidence that I will always make my dreams come true and who have been a reason for me to actually do it. You all are the truest meaning of a family with your unconditional support even when you have no idea what is going on in my head. To my partner and soulmate Erfan, who believes in me and my wild dreams and who keeps pushing me out of my comfort zone. Thank you for all the late nights you stayed up with me via skype while I was working on my thesis just to support me to keep moving forward and thank you for being the go to whenever I needed to brainstorm a research idea or an analytical understanding and for thoroughly proof-reading my thesis. I am also grateful for all the professors at the GAPP school, in particular my supervisor Dr. Ghada Barsoum, who is such an inspiration as a research guru and who is also an inspiration when it comes to supporting her students and giving them the most honest advice. I am also thankful to my readers’ committee: Dr. Shahjahan Bhuiyan and Dr. Rana Hendy and for their valuable comments. I am indebted to all the intellectual minds who either taught or mentored me during my journey: Dr. Laila Elbaradie, Dr. Khaled Abdelhaleem, Dr. Racha Helwa and Dr. Hania Elsholokamy. I am also indebted to Mr. Youssef ElJameel, who is my scholarship sponsor and whom this journey would have never been possible if it were not for his kind generosity and his commitment to community service, in particular to research and education. I’d like to express my appreciation for my late maternal grandmother’s soul Reda, the first female to go to university in her family, while being a wife and a mother, the first female to work abroad in her family too and who was the reason that all her nieces were sent to school to finish their education. The one who pushed my grandfather to complete his law degree while being married and on full time job. Knowing how much you cherished education and how you fought for women empowerment in your own way has kept me going when I was surrounded by the doubting voices in the community that girls cannot go beyond their limit. Lastly, I am thankful for all the beautiful souls who has been of great support during my journey: Ahmad Khaled, Yosra Osama, Shilla Mirzaei, Amira Elbiltagy, Mahmoud Elrefaie, Roqaya Zamzam, Eman Elhadry, Mays Abu Hegab, Rawda Ali, Ramy Refaat. Table of