Foreign Direct Investment (FDI) inflows to Sub-Saharan Africa (SSA) are on the rise and are becoming more widespread in the manufacturing sector. At the same time, there is an increasing importance of investors from developing countries. Moreover, domestic firms within SSA are increasingly integrated in regional and international markets across the world. The project considers these trends from different perspectives by investigating the following research questions:
- To what extent do domestic firms and foreign firms from different home countries operating in SSA differ in terms of productivity? Do foreign firms induce positive spill-over effects on domestic firms? And if so, do these effects differ across different origins of foreign investors? To what extent does domestic firm capability drive spill-over effects of FDI?
- Are domestic firms that trade more productive compared to non-traders? Does the distribution of imports across origin countries matter for domestic firms’ productivity? What drives the decision of domestic firms to trade (with particular countries)?
- Is there a geographic concentration of knowledge-intensive business services (KIBS) in SSA? Generally, it is argued that KIBS locate in spatial proximity to foreign investors, but how is it in SSA? Do KIBS and multinational firms cluster? Does clustering increase the probability of integration into regional and global value chains?
Contribution to International Research
The project aims to provide new insights into the importance and the productivity effects of foreign investors from different home countries in SSA as well as relevance and the effects of the increasing integration of domestic firms from this region into regional and global markets.
Research Design and Methods
Depending on the research question, we use firm-level cross-sectional and panel data from 10 SSA countries from the World Bank Enterprise Surveys (WBES) or cross-sectional firm-level data from 19 SSA countries from UNIDO’s Africa Investor Survey (AIS). A key issue in using both data sets is to identify the country of origin of each firm. We apply both cross-sectional as well as (more advanced) panel data techniques to analyse the above outlined research questions.
We find strong evidence of productivity spill-overs to domestic firms derived from foreign-firm presence in 10 SSA countries using the WBES. The largest productivity effects seem to emanate from investors that originate from other countries of SSA.