DUNNING'S ECLECTIC PARADIGM

Dunning's Eclectic Paradigm

Dunning's Eclectic Paradigm

Introduction

This paper uses Dunning's eclectic paradigm of international production to explain the inflow of foreign direct investment (FDI) to Sub-Saharan Africa (SSA). The eclectic paradigm is a general framework, which postulates that for FDI to take place, three factors must be present; firm-specific advantages, internalisation advantages and location-specific advantages. The absence of any one of these will prevent FDI from taking place. The firm-specific advantages (and their internalisation) are the spillovers of FDI, just what SSA countries need in their desire for growth and development. Greater emphasis is placed on the location-specific advantages, the factors SSA should effect to earn higher levels of FDI inflows. (Oteng 2006)

Discussion

The paper also express concern that despite improvements in SSA's macroeconomic policy, the benefits in terms of improved inflow of FDI has not materialised, and calls for a more considered and better policy approach to attract FDI. Despite the large increase in FDI flows to Africa in recent years, these flows represent only a small proportion of the total flows to developing countries. Average annual FDI flows increased from $2.2 Billion in 1980 to $15 Billion during the period 2000-2004. In contrast, Africa's share of global flows fell from 2.3% in 1980 to about 1.5% during 2000-2004(Onyeiwu 2004: 1) As a percentage of total flows to developing countries, Africa's share fell from 10% in 1980 to 7% during 2000-2004. The same declining pattern is revealed in the continent's flow per capita (UN, 2005). In the early 1970s, Africa attracted a higher share of world FDI than Asia and Latin America, but by 2000, it was attracting nine times and almost six times less FDI respectively.

This is summarised in the United Nations Conference on Trade and Development (UNCTAD) (2001), showing that FDI inflows to Africa slumped in 2000, bringing down the continent's already low share of world FDI inflows to below 1%. In previous years, this figure has hardly exceeded 2%, and in 2001, (Ngowi 2002) Africa's share did rise again to 2.3%. However, the share of Africa's FDI inflows in total inflows remains very low. Between 2000 and 2004, the continent received a little over an annual average of 2% as compared to 4.4% in the 1970s. UNCTAD (1999) attributed the poor FDI performance in SSA to the negative image the region holds among many foreign investors. For instance, the sub-continent tends to be associated with political turmoil, economic instability, diseases and natural disasters. Internal and external armed conflicts are its key characteristics. Military coup d'états are also common. Moreover, spillover effects from neighbouring countries' instability often in some way affect those countries that experience internal stability. (Morisset 2001) Within the continent, the distribution of FDI flows is also uneven. For example, in the early 2000s, the major recipients of flows in the region were South Africa, Morocco, Nigeria, Angola, and Algeria.

They invariably accounted for more than half of the total inflows to the ...