Business Regulations and Foreign Direct Investment in Sub-Saharan Africa: Implications for Regulatory Reform

This paper uses annual changes in distance-to-frontier scores for a set of the World Bank’s Doing Business indicators to examine the effect of business regulation variables on foreign direct investment inflows (FDI) in sub-Saharan Africa (SSA) over the period from 2005 to 2014. With random time effect estimates, for a panel of 44 SSA countries, the study finds that when account is taken of factors including population size, revenue level, natural resources, inflation, and governance effectiveness, FDI is significantly responsive to changes in starting a business, trading across borders, and protecting investor components of the World Bank’s Doing Business. With these findings, this paper recommends regulatory reform for a better business environment for sustainable FDI flow to the SSA region.