An Analysis of Factors Affecting Foreign Direct Investment in Zimbabwe (1980-2011)

The research analyses the factors that affect Foreign Direct Investment in Zimbabwe. The study was prompted by the low levels of foreign direct investment in Zimbabwe. This has caused low levels of economic growth and standards of living and hindered efforts to promote economic prosperity and sustainable development. The research used historical data of period 1980 to 2011 and the variables studied are foreign direct investment inflows, market size(measured by Gross Domestic Product), inflation rate (Consumer Price Index), real interest rates, trade openness and political instability. Yearly data was used to make a total of 32 observations. The data was analyzed using the linear regression model and ordinary least squares approach in Statistical Product and Service Solutions (originally known as Statistical Package for Social Sciences) version 14.0 and E-Views version 3.1.Trade openness and political stability are very crucial in determining the level of foreign direct investment in Zimbabwe. All the variables were found to be insignificant in explaining the level of foreign direct investment in Zimbabwe except for trade openness and political stability. Trade openness and political stability critically affect foreign direct investment inflows in Zimbabwe. There was unidirectional causality from trade openness to foreign direct investment and there was independence between political stability and foreign direct investment. The study recommends that Zimbabwe should increase trade liberalization by getting involved in regional and international economic integration and should ensure political stability in the country in order to attract for foreign direct investment.