Investigating the role of disaggregated economic freedom measures and FDI on human development in Africa

Abstract

Purpose – The purpose of the study is to investigate the role of disaggregated economic freedom measures inthe foreign direct investment (FDI) and human development nexus.Design/methodology/approach – The study uses a panel data of 32 selected African countries from 1996 to2017. A dynamic ordinary least squares (DOLS) with fixed effects and instrumental variable (IV) econometrictechniques was used to address issues of endogeneity and serial correlation commonly associated with paneltime series data.Findings – The Results indicate that FDI without accounting for absorptive factors has a positive butinsignificant effect on human development for the selected African countries. However, FDI has a positive andsignificant effect on human development when interacted with measures of economic freedom such asinvestment freedom, business freedom and financial freedom. In contrast, yet plausible, FDI has a negativeinfluence when interacted with property rights, trade freedom, government integrity and tax burden.Practical implications – The study posits that to attract FDI into Africa with the purpose of improvinghuman development, relevant absorptive capacities such as business, investment and financial freedomenvironment are critical. However, excessive capital flight and government interference through taxation andabuse of property rights should be controlled if the continent seeks to promote human development through FDI.Originality/value – The novelty and originality of the study, are evident in the use of disaggregatedmeasures of economic freedom as comprehensive absorptive capacities to examine how they complement FDIto impact on human development in Africa.