Economic Integration Agreements and Foreign Direct Investment in Zambia : An Analysis

For the past three decades, Foreign Direct Investment (FDI) has been the most common source of external finance in developing economies. Due to the importance attached to FDI as a contributor to growth and development, Economic Integration Agreements (EIAs) both regionally and extra-regionally are becoming increasingly more comprehensive with an expansive set of investment issues. Since 2000, Zambia has signed various EIAs with investment provisions and implemented unilateral investment liberalisation programmes to attract FDI. This study therefore, evaluates the impact of the EIAs on FDI in Zambia in order to determine their merit in policy formulation for future FDI attraction. The study used annual secondary data for the period of 2006 to 2012 and employing a Poisson Pseudo-Maximum Likelihood estimator in a panel data fixed effects framework. The study establishes that EIAs have had a significant positive impact on FDI in Zambia. The study however, further establishes that despite FDI increasing, the volumes have been relatively low, suggesting that enacting liberal trade policies through EIAs alone is not sufficient as the country needs to do more in facilitating investment. This study is intended to inform the policy-making process within the country and as countries engage in future negotiations to formulate policies to attract FDI in the regional and extra-regional EIAs.