TITLE:
Does Foreign Investment Industrialize the Host or the Region? Spatial Panel Evidence from SADC
AUTHORS:
Rebecca K. Yeo, Ninquassau V. A. Koassi, Jacques K. Konan, Alassane Soma
KEYWORDS:
FDI Spillovers, Spatial Panel, Industrialization, SADC, Spatial Durbin Model, Moran’s I
JOURNAL NAME:
Modern Economy,
Vol.17 No.11,
November
10,
2026
ABSTRACT: Attracting foreign investment is the centerpiece of SADC’s industrial policy, but whether the benefits accrue to the host or its neighbors has yet to be determined. By estimating the entire spatial panel family using a balanced thirteen-country panel, we discover that FDI industrializes the region rather than the recipient: the coefficient on neighbors’ FDI is positive and significant in the spatial Durbin, spatial Durbin error, and least-squares specifications, and the indirect impact is an order of magnitude larger than the statistically negligible direct impact. In contrast, urbanization, institutional quality, and credit all have an impact on the local level. The policy implication is that foreign investment is a regional instrument and not a national one: where the industrial returns to attracting capital accrue largely to neighbors, competitive national incentive schemes bid for a benefit their sponsors do not capture, so coordinating investment incentives at the level of the customs union dominates outbidding one another. Because the other three determinants act locally, that case for coordination applies to FDI alone.