The Impact Of Factors(Economic And Institutional)on The Foreign Direct Investment In The Republic Of Congo

Since the end of the Second World War,there has been an expansion of the international trade.One of the forms of globalization of the known economies is foreign direct investment.Foreign direct investment in developing countries has seen a phenomenal growth since the early 1980s.The world market has become more competitive in this area.The growing appeal of developing countries is partly due to the range of opportunities that offered the investors.Over the past two decades,the volume of foreign direct investment(FDI)in developing countries has grown considerably.From now on,the governments of developing countries clearly enroll FDI in their development strategies,and this,for several reasons:have a positive impact on economic growth,financial resources,job creation and the effects of spills they are producing on local businesses.In the Republic of Congo,FDI is more based oil sector,which makes the Congolese economy extremely dependent on revenue from oil(90%of exports and 75%of revenue).The economy of Republic of Congo is suffering the consequences of falling oil prices.This led to a decline in economic growth(-2.6%in 2015 and-1.6%in 2016).This heavy dependence of the economy on oil has been a curse rather than a blessing on republic of Congo.The reason is that other sectors of the economy were ignored.The drop in oil prices on the world market since 2015 has led to the republic of Congo economy crumbling,hence the need for diversification.The diversification of economic activities is primordial to improve the quality of growth,create enough jobs and significantly reduce poverty.It is also essential to reduce the Republic of Congo economy's weakness to external shocks and the risks associated with the economy's excessive dependence on oil.This study consists of identifying the factors that explain the entry of FDI into the national economy.It is based on three important chapters.The first chapter is focused on the theoretical background of FDI.It is marked on three key points that are the theoretical aspect,structure of FDI and impact of FDI on economic growth of developing countries.The second chapter is on the potentialities and investment opportunities in the Republic of Congo.As a result,seven(7)priority areas have been identified in the National Development Plan and take into account the needs inherent in the advantageous integration of the basic sectors into the processing sectors.These areas of potential interest are:oil&hydrocarbons,mining,agriculture&agribusiness,forestry&industry,infrastructure,tourism&hospitality industry and financial services.The third chapter is the empirical data analysis.The Auto-regressive Distributed Lag(ARDL)Bounds Testing Approach to cointegration for the long-run is applied.The Vector Error Correction Model(VECM)is used to examine the short-run estimation by the Ordinary least Square(OLS),then the diagnostic tests(using Normality test,the Serial Correlation LM test,Heteroskedasticity),model specifications(using Ramsey RESET test)and model stability(using Cumulative Sum and Cumulative Sum Square)was appliedThis study further proposed a formula to determine the time required to eliminate x'%of an external shock.The results of the estimation of long-run coefficients by Ordinary Least Square methods indicates the variables such as Gross Fixed Capital Formation(GFCF),Exports(EXP),Imports(IMP),Oil Production(OP)and Exchange Rate(EXCR)explain the entry of Foreign Direct Investment,because there are all statistically significant at 5%.The results of the estimation of Vector Error Correction Model(VECM)in the short-run are indicated that the gross fixed capital formation,exports,import and oil production are the factors which explain the entry of Foreign Direct Investment.In conclusion,the variables GFCF,EXP,IMP,OP and EXCR are the main factors which explain entry of FDI in the Republic of Congo.The results of this study provided the government with economic policy strategies to improve the country's attractiveness to FDI in other sectors of the economy apart from oil.