Foreign direct investment inflows, divestment and internationalisation: panel evidence from African economies, 2010–2023

Abstract This study examines how foreign direct investment (FDI) inflows and foreign direct divestment (FDD) are associated with the internationalisation of African economies. Using an unbalanced panel of 47 African countries (618 country-year observations, 2010–2023), internationalisation is measured with the KOF trade and financial globalisation indices, while FDI inflows and FDD (the absolute value of negative net FDI inflows) are scaled by GDP and log-transformed. Two-way fixed-effects and two-step System GMM estimators are complemented by partial-sum asymmetry tests, Hansen panel-threshold models with institutional quality as the threshold variable, and income-group heterogeneity analysis based on the World Bank classification. FDI inflows are robustly and positively associated with trade globalisation in the fixed-effects models (β = 1.148, p = .006) and with financial globalisation in the dynamic and lagged specifications. Divestment is negatively associated with trade globalisation when estimated on its own and in the dynamic model, but the association is imprecise once FDI inflows are controlled for, is concentrated in lower-middle-income economies, and is driven largely by Angola and the Republic of Congo, which together account for 88% of divestment in the sample. Distributed-lag estimates show that the divestment association with trade globalisation materialises with a two-year lag (cumulative effect − 3.323, p = .026) and intensifies with natural-resource dependence. There is no statistically significant evidence that internationalisation responds asymmetrically to increases and decreases in investment. Threshold estimates indicate that the FDI–trade association is confined to economies with weaker institutional quality, contrary to the expectation that stronger institutions amplify it. The findings suggest that, in Africa, investment exit is episodic and geographically concentrated, and that its relationship with internationalisation is weaker and less general than is often assumed.