Determinants of foreign direct investment in Sudan: an econometric perspective

The paper explores the determinants of foreign direct investment (FDI) in Sudan over the period (1970–2010). The study considers the market size, inflation rate, exchange rate, indirect taxes, trade openness, and investment incentive policy as factors influencing FDI. The study uses the cointegration and error-correction techniques to identify the short- and long-run dynamics of the FDI determinants. The Johansen cointegration test statistics indentify four cointegrating relations among the series, which implies an existence of long-run relationship among the FDI determinants. The results of the long-run FDI equation indicate that FDI flows in Sudan are influenced by the market size, inflation rate, exchange rate, and investment incentive policy. The error-correction term suggests that approximately 17% of total disequilibrium in FDI flows was being corrected each year. Moreover, Granger causality results show that there is a unidirectional causality running from each of the exchange rate, investment incentive policy, and the market size to FDI.