This study aims to investigate how the oil reserve-to-production (r/p) ratio impacts foreign direct investment (FDI) inflows in Africa’s leading oil-producing economies and how financial development moderates this relationship.
The study estimated panel data of the 10-leading oil-producing Africa countries between 2000 and 2022, using pool mean group estimation technique.
The study shows that the abundance of oil has a long-run adverse impact on FDI inflows into African oil-producing countries, and that this effect is more pronounced in Sub-Saharan Africa than in North Africa. Furthermore, the importance of a well-developed financial sector for foreign investors is evident only in Sub-Saharan Africa; however, its interaction with oil r/p plays a significant role in mitigating the adverse impact of oil wealth on FDI inflows, particularly in North African countries.
To the best of the authors’ knowledge, no study has ever considered the oil r/p as a proxy for oil, as it can serve as a valuable measure of oil wealth or availability that can influence FDI inflows. Moreover, most studies on the linkages between oil and FDI flows in Africa focus on comparisons between oil-rich and non-oil-rich countries, with limited comparison among oil-abundant countries or regions themselves, leaving the unique opportunities and challenges of these economies underexplored. Hence, this study focuses on the top 10 African oil-producing economies, by comparing North Africa and Sub-Saharan Africa. In addition, this study innovatively introduced financial development as a moderating variable to provide insight into the dynamic interaction between oil, and FDI inflows in Africa.
