Foreign and domestic private investments in developing economies : cases in sub-Saharan Africa

Thesis (PhD)--Stellenbosch University, 2020.ENGLISH ABSTRACT : The role of foreign-owned investments in the economic transformation of host economies cannot be overstated. Foreign-owned investments are associated with higher levels of employment; higher mean wages; technological transfer via spill-overs to domestic firms; high capital and export intensities. Through these positive features, foreign investments are generally associated with positive effects on economic growth. Economies in Sub-Saharan Africa (SSA) have been cognisant of these positive benefits, as is manifested by their national development plans for the near future. As more foreign-owned investments have flowed in the region, there has been visible economic growth, but with dismal effects in terms of employment creation in both numbers and quality. Exportation remains low and the impact on poverty remains mild. These poor results undermine the strength of the supposedly empirical association between foreign-owned investments and economic transformation of typical host economies, at least in SSA. Existing empirical knowledge on the nature of foreign-owned investments in SSA and their likely effects on economic welfare of host economies has either remained scanty or mainly been at the macro level due to limited data. This thesis attempts to sidestep this challenge by utilizing three different firm-level data sets to examine the nature and effects of foreign investments in relation to domestic firms in SSA from a microeconomic perspective. Firstly, a relatively novel, unsupervised, machine-learning approach has been used to classify firms so as to study their characteristic features. In this attempt, firm-level performance features, which have empirically been found by existing studies to distinguish foreign from domestic firms, are re-examined. This inquiry is a robustness check for previous studies and is undertaken from both a one-country and a multi-country perspective. Most studies that have utilised firm-level data to classify firms have in most cases been based on assumptions specified a priori. Using performance indicators such as output, employment and exports, correlation results from these studies are reported based on these classifications. In this thesis, firms are classified and their performance features examined without prior assumptions set especially regarding data distribution. Agglomerative clustering methods have been used to generate groups of firms a posteriori before examining these groups descriptively along performance indicators. Key findings indicate that foreign-owned firms systematically differ from domestically owned firms along numerous performance indicators, while there is a high likelihood of intra-foreign-owned firms’ heterogeneities. In the second and final analysis, this thesis has employed regression and matching techniques with difference-in-differences estimation methods to investigate the existence and nature of effect of foreign ownership on firm-level performance in SSA. This thesis considers foreign ownership arising out of acquisition of a local firm by foreigners. This provides crucial evidence as to whether foreign-owned investments in SSA truly influence host economies’ welfare from a firm-level perspective. Empirical findings in this thesis indicate that, although cream-skimming is prevalent in foreign acquisition of formerly domestically owned firms, foreign ownership has positive effects on firm performance. This thesis finds positive acquisition effects on employment, wages, productivity, output, skill intensity, and capital investments. These positive effects are significant for wages, output, and productivity. By implication, through their effects at firm-level, foreign-owned investments are still a potential channel through which sustained welfare enhancements in SSA can be achieved, given well-intentioned policies being in place.AFRIKAANSE OPSOMMING : Die rol van beleggings in buitelandse besit in die ekonomiese transformasie van gasheerekonomieë kan nie oorbeklemtoon word nie. Beleggings in buitelandse besit hou verband met hoër indiensnemingsvlakke; hoër gemiddelde lone; tegnologiese oordrag via stortings na huishoudelike firmas; hoë kapitaal- en uitvoerintensiteite. Deur hierdie positiewe eienskappe word buitelandse beleggings meestal geassosieer met 'n positiewe uitwerking op ekonomiese groei. Hierdie positiewe voordele is bewus van die ekonomieë in Afrika suid van die Sahara (SSA), soos blyk uit hul nasionale ontwikkelingsplanne vir die nabye toekoms. Namate meer beleggings in buitelandse besit in die streek gevloei het, was daar sigbare ekonomiese groei, maar met 'n aaklige uitwerking wat betref die skepping van indiensneming in getalle en kwaliteit. Uitvoer bly laag en die impak op armoede bly mild. Hierdie swak resultate ondermyn die sterkte van die vermeende empiriese verband tussen beleggings in buitelandse besit en ekonomiese transformasie van tipiese gasheerekonomieë, ten minste in SSA. Bestaande empiriese kennis oor die aard van buitelandse beleggings in SSA en die waarskynlike gevolge daarvan vir die ekonomiese welvaart van gasheerekonomieë het nogal gebly of hoofsaaklik op makro-vlak gebly as gevolg van beperkte gegewens. Hierdie tesis poog om hierdie uitdaging te benadeel deur drie verskillende datastelle te gebruik om die aard en gevolge van buitelandse beleggings met betrekking tot plaaslike ondernemings in SSA vanuit 'n mikro-ekonomiese perspektief te ondersoek. Eerstens is 'n relatief nuwe, sonder toesig, masjienleer-benadering gebruik om ondernemings te klassifiseer om hul kenmerkende kenmerke te bestudeer. In hierdie poging word prestasie-funksies op firma-vlak, wat deur bestaande studies empiries gevind is om buitelandse en plaaslike ondernemings te onderskei, heroorweeg. Hierdie ondersoek is 'n robuustheidsondersoek vir vorige studies en word onderneem vanuit 'n een-land- en 'n multi-landse perspektief. Die meeste studies wat data op firma-vlak gebruik het om ondernemings te klassifiseer, is in die meeste gevalle gebaseer op a priori-aannames. Op grond van hierdie klassifikasies word prestasie-aanwysers soos uitset, indiensneming en uitvoere gerapporteer. In hierdie tesis word firmas geklassifiseer en hul prestasie-eienskappe ondersoek sonder voorafgaande aannames, veral met betrekking tot dataverspreiding. Agglomeratiewe groeperingsmetodes is gebruik om groepe firmas a posteriori te genereer voordat hierdie groepe beskrywend met prestasie-aanwysers ondersoek word. Belangrike bevindings dui aan dat ondernemings in buitelandse besit stelselmatig verskil van ondernemings in plaaslike besit volgens talle prestasie-aanwysers, terwyl die groot waarskynlikheid bestaan dat ondernemings in buitelandse besit se heterogeniteit bestaan. In die tweede en finale ontleding het hierdie tesis regressie- en bypassingstegnieke gebruik met beramingmetodes van difference-in-differences om die bestaan en aard van die effek van buitelandse eienaarskap op firma-vlakprestasie in SSA te ondersoek. In hierdie proefskrif word buitelandse eienaarskap voortspruitend uit die verkryging van 'n plaaslike firma deur buitelanders. Dit lewer 'n belangrike bewys of beleggings in buitelandse besit in SSA die welvaart van die gasheerekonomie werklik vanuit 'n vaste perspektief beïnvloed. Empiriese bevindings in hierdie proefskrif dui aan dat, hoewel kremskeep algemeen voorkom in die buitelandse verkryging van voorheen plaaslike ondernemings, buitelandse eienaarskap 'n positiewe uitwerking op die onderneming se prestasie het. Hierdie tesis vind verkrygingseffekte op indiensneming, lone, produktiwiteit, produksie en kapitaalbeleggings. Hierdie positiewe gevolge is beduidend vir lone, produksie en produktiwiteit. By implikasie is beleggings in buitelandse besit deur die gevolge daarvan op firma-vlak steeds 'n potensiële kanaal waardeur volgehoue welsynverbeterings in SSA bereik kan word, gegewe die goedbedoelde beleid wat bestaan.Doctora