Determinants of foreign direct investment in Sudan: an econometric perspective

Author： Ibrahim Omer Ali Hassan Hisham Mohamed

ISSN： 1362-9387

Source： Journal of North African Studies, Vol.18, Iss.1, 2013-01, pp. : 1-15

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Abstract

The paper explores the determinants of foreign direct investment (FDI) in Sudan over the period (1970-2010). The study considers the market size, inflation rate, exchange rate, indirect taxes, trade openness, and investment incentive policy as factors influencing FDI. The study uses the cointegration and error-correction techniques to identify the short- and long-run dynamics of the FDI determinants. The Johansen cointegration test statistics indentify four cointegrating relations among the series, which implies an existence of long-run relationship among the FDI determinants. The results of the long-run FDI equation indicate that FDI flows in Sudan are influenced by the market size, inflation rate, exchange rate, and investment incentive policy. The error-correction term suggests that approximately 17% of total disequilibrium in FDI flows was being corrected each year. Moreover, Granger causality results show that there is a unidirectional causality running from each of the exchange rate, investment incentive policy, and the market size to FDI.