ABSTRACT
This study attempts to show that South-East Asia countries have attracted significantly more FDI than sub-Saharan Africa countries over the 1976-1995 period because their public governance was better. Indeed, through the construction of public governance indicators, it is demonstrated that the quality of institutions in South-East Asia (SEA) has been much higher than in sub-Saharan Africa (SSA). Turning to the factors attracting foreign direct investment in these regions, it is econometrically confirmed that a high provision of public goods and sustainable outward-orientated macroeconomic policies have been key determinants. In fact, diverging governance conditions would explain 90 per cent of the difference between SEA and SSA average ratio of FDI to GDP. For the SEA sample, it is found that FDI inflows have been deterred by high bureaucratic corruption and weak corporate governance.1 Moreover, the indicators of corruption and corporate governance are highly correlated with the macroeconomic policies index, giving support to the idea that open economies possess better institutions.
