Foreign Direct Investment in developing countries and agricultural productivity in the tropics: Why Africa receives less FDI and has low agricultural productivity

This study examines why Africa as a region continues to attract less Foreign Direct Investment (FDI), and also has the lowest agricultural productivity among developing countries and tropical countries respectively. Attracting enough FDI will at least theoretically boost domestic investment, increase employment, enhance technology transfer and increase domestic exports (by making domestic firms competitive). The Agricultural sector employs a greatest share of Africa's labor force and also contributes most of Africa's nominal GDP. Therefore increasing agricultural productivity will go a long way in not only reducing rural unemployment but also reducing poverty. It has also been shown that growth in agricultural productivity is more poverty reducing that a similar growth in manufacturing sector.;In chapter 2, using pooled feasible generalized least squares (with individual fixed effect) on an unbalanced panel of between 55 and 77 countries, from 1984--2005, I examine the determinants of Foreign Direct Investment (FDI) in developing countries in general and sub-Saharan Africa (SSA) in particular. I find that extensive economic infrastructure is necessary for FDI flow to developing countries. With respect to institutional variables, the results also show that a stable government and conducive investment environment are associated with higher levels of FDI flow to developing countries. The results again show that while some of the regressors affect FDI inflow to sub-Saharan Africa in the same way, they do with respect to that of non sub-Saharan Africa, other regressors affect sub-Saharan Africa FDI inflow differently. For instance while infrastructural development, stable government, and conducive investment climate are associated with higher inflow of FDI to sub-Saharan Africa and non sub-Saharan Africa regions, availability of natural resources (i.e. fuel exports) is positively associated with FDI inflow to SSA, but negatively associated with FDI to areas outside of SSA. Also the results show that below a certain threshold, larger GDP per capita and lower corruption level are positively associated with FDI flow to SSA. Other robustness checks show that the results are similar in the two datasets and various specifications.;In chapter 3, we examine the determinants of agricultural productivity in the tropics, and test whether these determinants affect tropical sub-Saharan Africa agriculture differently than in other tropical regions. We find that fertilizer usage, telephones, and rainfall have a positive and significant effect on agricultural productivity, while tractor usage and most institutional variables are insignificant. Interestingly, we find evidence that the effect of irrigation and rainfall differs inside and outside of tropical sub-Saharan Africa. Outside of Africa, irrigation positively and significantly impacts productivity. Inside it, the effect is either insignificant or highly muted. In an expanded sample of countries, we show that rainfall has a positive and significant impact on productivity in tropical SSA, but an insignificant effect outside of the region.;I discuss what needs to be done in Africa for it to increase its agricultural productivity in chapter 4. I review all the various interventions that have taken place in Africa with the goal of boosting its agricultural productivity, but failed to realize that goal. In particular I look at why the earlier Green Revolution that transformed agricultural productivity in most of the Asian and Latin American countries stalled in Africa. I then examined the two main approaches (i.e. focused approach and comprehensive approach) that have been suggested in the literature to improve Africa's agricultural productivity. The proponents of the comprehensive approach note the complex nature of Africa's agricultural problems and hence propose that the solution should be multifaced and coordinated. Those who advocate for the focused approach argue that with scarce budgets, the solution to Africa's agricultural problems should be concise and focused on the more binding constraints to agricultural productivity. Finally, I argue that the approach that Africa adopts (be it comprehensive or focused approach) is not the key, but rather the significant role that African leaders will need to play. African leaders will have to improve rural infrastructure, make technology adoption affordable through the use of subsidies and micro-financing. Also African leaders will have to provide safety nets for farmers to reduce the risk in adopting new technology. Without African leaders providing these facilities, none of the approaches suggested stands a chance to succeed.