Columbia International Affairs Online: Working Papers

CIAO DATE: 05/2015

The Heterogeneity of FDI in Sub-Saharan Africa: How Do the Horizontal Productivity Effects of Emerging Investors Differ from Those of Traditional Players?

Birte Pfeiffer, Holger Görg, Lucia Perez-Villar

December 2014

German Institute of Global and Area Studies


This paper analyzes the horizontal productivity effects of foreign direct investment (FDI) from industrialized and developing countries in 10 sub‐Saharan African countries. We establish a unique data set by combining data from the World Bank Enterprise Surveys that allow us to distinguish between foreign investors from sub‐Saharan Africa, Asia, Europe, the Middle East, and North Africa. We find strong evidence of horizontal productivity spillovers to domestic firms derived from foreign‐firm presence. However, these effects are clearly dependent on domestic firms' absorptive capacity. The largest productivity effects seem to be driven by investors from sub‐Saharan Africa. Our analysis also shows that productivity effects differ according to the income level of host countries. Overall, the strongest productivity effects seem to materialize in lower‐middle‐income countries. These key findings emphasize the increasing importance of emerging investors, beyond the traditional players from industrialized countries, in sub‐Saharan Africa.