Governance and Foreign Direct Investment : A comparative Analysis between Low and Middle Income African Countries

This paper investigates the effect of governance on FDI on a sample of 41 African countries: 20 low income countries and 21 middle income countries, over the period of 1996-2013.Our study moves from an aggregated analysis to a disaggregated analysis by applying the system generalized method of moments (System-GMM). The aggregated approach consists to use a composite institutional quality index, which includes the six dimensions of governance to identify the overall impact of governance on FDI inflows. While, the iterative approach examines the effect of the six dimensions of governance on FDI. Our results indicate that good governance is a deterministic condition in attractiveness of FDI in African economies