The effects of foreign direct investment on start-ups in sub-Saharan Africa: A dynamic panel model approach

Abstract

Start-ups play a crucial role in developing and emerging economies' growth and development, and foreign direct investment is key to their success. In this study, using data from 2006 to 2018, we employed a system GMM model to examine the impact of foreign direct investment on business start-ups in Sub- Saharan Africa. The findings of this study clearly show that foreign direct investment has a significant and positive effect on business start-ups in the region. Additionally, this study shows that domestic credit to the private sector positively affects business start-ups while high lending interest rates impede business start-ups. Also, business regulations positively impact business start-ups. Based on these compelling findings, we recommend increasing foreign direct investment flows targeting the private sector to encourage more start-up businesses. We also suggest that governments should further reduce the cost of new business procedures to create a favourable environment for start- ups to enter the markets and compete equitably. Furthermore, we assert that Central Banks should stabilize monetary policy to encourage banks to reduce lending interest rates, making it easier for the populace to access low-cost credit for starting new businesses.