Abstract

In the literature, there has been the tendency for studies to focus on the relationship between economic infrastructure and foreign direct investment (FDI) inflows alone without taking into account the effects of social infrastructure on FDI. The main objective of the study therefore was to examine the relationship between economic infrastructure and FDI on one hand, and social infrastructure and FDI on the other. The study employed Two Stage Least Squares (2SLS) estimation technique and quarterly time series data from 1975 to 2012 to examine the effects of both economic and social infrastructure on net FDI inflows. The Two Stage Least Squares (2SLS) results find a positive and statistically significant effects of both economic and social infrastructure on net FDI inflows. While market size, trade openness and agglomeration exerted a positive and statistically significant effect on FDI inflows, inflation and external debt stocks on the other hand, revealed a negative effect on FDI inflows. In order to attract more FDI inflows, the study recommends that both the Ministry of Energy/Power and the Ministry of Education should increase investment in electricity generation and educational facilities respectively so as to enhance economic and social infrastructure.