Foreign Direct Investment Inflows into Emerging Markets: Driving Forces and Lessons for Africa

Abstract

Foreign direct investment (FDI) has been referred to as an engine of growth, especially in a developing country. This is based on the fact that it can potentially play a vital role in the process of economic development. FDI for example is known to create new jobs and retain old ones, provide needed capital investment, contribute to government coffers, and bring new, advanced and state-of-the art technologies among other advantages. No wonder then that countries are actively bidding to attract more FDI inflows. Despite the fact that virtually all countries are making efforts to attract more FDI inflows, the global distribution of these investments is highly skewed. The lion’s share has traditionally been flowing into the Triad (the USA, Japan and the European Union – EU). In the recent past, it has been observed however that a substantial amount of FDI is starting to flow into the emerging markets, especially those in Asia, Central and Eastern Europe. Africa, on the contrary, has been lagging behind in attracting these essential investments for its development in general and poverty reduction in particular. This chapter attempts to describe the driving forces behind FDI inflows into the emerging markets of Asia, Central and Eastern Europe. It further attempts to identify some lessons that Africa can learn from these markets in its bid to attract more FDI.