The influence of HIV/AIDS on foreign direct investment in Africa
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The main aim of this research project is to determine the influence of HIV/AIDS on FDI flows to Africa. In order to do so, the following objectives were set: to explore the characteristics of HIV/AIDS, the current trends and statistics of HIV/AIDS, as well as its effect on the economy as a whole, to investigate the concept, distribution and determinants of FDI, as well as the link between HIV/AIDS on FDI inflows to Africa through regression analysis. The influence of HIV/AIDS on human capital and FDI were tested via regression analysis. Data from thirty-nine African countries were used and two cross-sections were compiled - one for the period of 1999 to 2003, and the other for the period of 2001 to 2005. Firstly, the influence of HIV/AIDS on human capital was estimated and the results showed that HIV/AIDS has a significant negative influence on human capital in African countries. Secondly, the human capital indicators were constructed from the regressed equation and introduced in the two types of FDI models. The results showed that the influence of these human capital indicators is negative, which was in contrast to expectations. It was reasoned that Africa might mainly attract resource- and market-seeking FDI that do not require high quality human capital. In contrast, efficiency-seeking FDI requires a higher quality human capital for investment and it is possible to believe that investors do not seek African countries as a destination for efficiency-seeking FDI. Thirdly, when the dependent variable is the fraction of FDI that a country receives relative to other African countries, human capital has a significant positive influence. This may be an indication that although human capital may not be that important when choosing to invest in Africa, it becomes important when choosing between various African countries. Lastly, it should be noted that in introducing HIV/AIDS prevalence on its own in the FDI regression equations, it is not significant. The same can be said about the Human Development Index (HDI), which can be seen as a proxy for health. Therefore, this research project concludes that the main channel through which HIV/AIDS influences FDI is human capital.