Drivers of Foreign Investment Inflow in Sierra Leone: An Econometric Analysis

Despite Sierra Leone's abundance of natural resources, the country grapples with economic difficulties that hinder its ability to fully capitalise on its potential wealth. Addressing a notable gap in existing research, this study explores the key factors influencing Foreign Direct Investment (FDI) in Sierra Leone. Utilising established theoretical frameworks such as the OLI paradigm, IDP theory, and institutional theory—particularly given the limited empirical studies available— the study has conducted a detailed examination of both macroeconomic indicators and institutional variables. Employing an AutoRegressive Distributed Lag (ARDL) model alongside robust regression techniques, the research reveals a significant continuity in FDI flows, which are largely shaped by historical investment patterns. The findings underscore the detrimental effects of exchange rate depreciation, inflation, and political instability on FDI, highlighting the critical role of macroeconomic stability. In contrast, a positive association with real GDP growth suggests that economic expansion is a key attractor for foreign investors. Furthermore, the study identifies bureaucratic inefficiencies as a barrier to FDI, while also noting the initial allure of resource-seeking investment behaviour. These insights present a valuable roadmap for policymakers aiming to bolster macroeconomic stability, simplify bureaucratic procedures, and diversify Sierra Leone's economy, thereby enhancing its appeal as a destination for foreign investment and addressing its persistent economic challenges.