The determinants of Indian FDI in Africa: A structural equation approach

Abstract

Much has been written in economic circles about the rising investment of the BRICS countries in Africa, yet there is scant literature on the determinants of FDI from these countries to Africa, and no studies have reported on that from India. In 2012, Indian FDI surpassed that of China, making India the largest developing country that is a direct investor in Africa. This study focuses on understanding the determinants of Indian FDI in Africa using structural equation modelling (SEM), which includes factor analysis and regression estimations. The specific determinants that influence the number of Indian FDI deals in Africa include government effectiveness, control of corruption, crude oil price, school enrolment and exports. The value of the investments is influenced by government effectiveness and rule of law. We conclude that India’s increasing involvement in Africa is driven by trade and resources. It is, however, differentiated through a strong focus on good governance.