Natural Resources, Quality of Institutions and Foreign Direct Investment in Sub-Saharan Africa

An analysis of statistics on foreign direct investment (FDI) inflows reveals that some countries in sub-Saharan Africa (SSA), which are heavily endowed with natural resources and have internal conflicts, have managed to attract significant FDI. This study sought to determine whether it is possible that, for the same countries with weak institutions, some foreign investors can be attracted to invest in them while others are systematically repelled. We found that weak institutions are favourable to FDI inflows into the extractive sector, while they crowd out FDI into other sectors. Thus, resource-rich countries do not need institutional reforms to attract FDI.