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The Economics and Finance Letters

March 2019, Volume 6, 1, pp 9-24

Foreign Direct Investment in Zimbabwe: The Role of Uncertainty, Exports, Cost of Capital, Corruption and Market Size

J. Muzurura

J. Muzurura 1


  1. Women’s University, Zimbabwe 1

on Google Scholar
on PubMed

Pages: 9-24

DOI: 10.18488/journal.29.2019.61.9.24

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Article History:

Received: 19 November, 2018
Revised: 24 December, 2018
Accepted: 29 January, 2019
Published: 15 March, 2019


Abstract:

Most of developing countries such as Zimbabwe see foreign direct investment as a panacea for augmenting domestic savings, generating employment, eradicating poverty and stimulating economic growth. Foreign direct investment also is associated with significant positive spillover benefits such as; facilitating technological progress, enhancing production efficiencies, promoting skills and knowledge diffusion and increasing international competitiveness. The paper investigated the role of cost of capital, uncertainty, exports, market size and other macro factors in attracting FDI in Zimbabwe. This paper relied on a time series analysis using Ordinary Least Regression equation for the period 1998-2017. Uncertainty and cost of capital were found to be negative and statistically significant whilst market size and lagged exports were found to be positive and statistically significant. The paper recommends adoption of policies that improve domestic absorptive capacity such as the elimination of uncertainties in the economy, promoting more trade openness, improving market size and liberalisation of credit and financial markets to reduce firm borrowing costs.
Contribution/ Originality
This study contributes to the existing literature on foreign direct investment by demonstrating the role of macro-uncertainty and cost of capital in attracting FDI. In addition, this study utilizes a new estimation methodology of FDI that is based on the modification of the flexible accelerator model of investment behaviour.

Keywords:

FDI, Uncertainty, Corruption, Market size, Public infrastructure, Zimbabwe.

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Funding:

This study received no specific financial support.

Competing Interests:

The author declares that there are no conflicts of interests regarding the publication of this paper.

Acknowledgement:


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