Determinants of Foreign Direct Investment Flows into Sudan

Abstract

This paperaims at investigating the short and longrun determinantsof Foreign Direct Investment (FDI)flowinto Sudan, using cointegrationandVector Error Correction Model (VECM). The long-run analysis indicates thatFDI flows are positively influenced bymarket size,trade openness,humancapital and infrastructure. On the other hand,political instabilitydiscourages theflow of FDI.Similar tothelong-run analysis,the results of VECM confirmthepositive effect of trade openness, human capital and infrastructurein attractingFDI.Unlike the long-runresults, the analysis of short-run reveals that FDI flowsare negatively influenced by exchange rate and inflation.The resultsof short-runanalysisalsoshowthat oilhas positive impact on FDI, implyingthat the adventof oil was an importantfactorencouraged the substantial flow of FDIin the lastdecade. Moreover, the error term coefficient isfound to benegative andsignificant, supporting the long-run analysis.Based on these findings, the paperconcludes with some policyrecommendations regardingthefactors thatfacilitating the flow of FDI into Sudan.