The Impact of Property Rights on Foreign Direct Investment: An Analysis on a Select List of African Countries

Africa’s share of total foreign direct investment flows and stock have been low and staggering over time relative to other regions. African policymakers have attempted to find ways of attracting foreign direct investment into the African continent. Existing economic literature suggests that weak property rights, institutions and economic freedoms discourage foreign investors from investing. In the African context, colonialism has led to a pluralistic form of property rights which has resulted in challenges in land tenure. Given this, the primary objective of this study was to investigate the relationship between property rights and foreign direct investment in the African region. Using data extracted from the World Bank Indicators and the Heritage foundation, this study employed annual panel data on 29 African countries over the period 1996 to 2022. First, the study employed both a random effects and fixed effects model and found that the random effects model was the most appropriate. Further, the panel data exhibited the presence of autocorrelation and heteroskedasticity. As a result of this, the study also employed a Panel Estimated Generalized Least Squares model as it had the ability to overcome both autocorrelation and heteroskedasticity. The empirical results revealed that there is an ambiguous relationship between property rights and foreign direct investment in the African region. Moreover, the empirical results revealed that economic freedom, which measures the extent of a nation’s openness and business friendless has a positive and statistically significant impact on foreign direct investment in the African region. Given this, the study recommends that African policymakers should focus on formulating policies that promote and improve the economic and entrepreneurial environment in which they govern in order to attract foreign direct investment.