On the Determinants of Domestic and Foreign Investment to SADC: What Role for Regional Integration?

To increase investment both foreign and domestic is one of the aims of the South African Development Community (SADC). Although investment in SADC is still lower than in industrial countries or emerging markets it is higher than for the rest of sub-Saharan Africa. Whereas the main determinants of investment like macroeconomic and political stability, availability of natural resources and low production costs are well investigated the role of regional integration for attracting investment is still not very well established. Regional integration could enhance investment through various channels like larger markets and improved cross-border infrastructure. The results of a panel regression analysis show that the regulatory quality in the economy in general as well as independent regulation of the telecom sector can help to attract FDI. However for domestic investment the level of industrialisation the financial development and GDP p.c. growth seem to play a bigger role. Membership in SADC only plays a role for FDI, but no effect of the market size of regional groupings could be found.