Determinants of FDI in Ghana A number of studies examine the determinants of capital flows to developing countries. These studies tend to look first at capital flows generally and then to focus specifically on foreign direct investment. In general, the studies divide the factors influencing capital flows into developing countries into push and pull factors. The push factors, which are external to developing countries, focus on growth and financial market conditions in industrial countries. According to Calvo et al. (1993), total flows are driven primarily by push factors, mainly growth and interest rates in industrial countries. Mody and Murshid (2001) found that developments within an individual developing country tend to raise capital to that country by increasing the share of total flows allocated to that country. The push (external) factors determine the pool of funds available to LDC, while the pull factors determine their allocation among less developed countries (Collins, 2002).
The pull factors depend on a long list of domestic policies and characteristics of potential host countries. Among the various indicators are macroeconomic policy and performance (growth, the external balance, real exchange rate over-valuation and exchange rate regime, financial market development); indicators of current and capital account openness; tax levels and existence of incentives to encourage capital inflows; measures of the quality of legal and other institutions (including corruption); conflict measures; political regime and; size of domestic markets and natural resource base.
Relatively high degree of uncertainty in Sub-Saharan Africa is one of the reasons why foreign investors are reluctant to invest in Africa including Ghana. Despite the enormous profitable opportunities in Ghana and the rest of the sub region, the uncertainty in the 10
FDI and economic growth in ghana