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Documentos de Trabalho nº 98

Carlos Pestana Barros, Bruno Damásio e João Ricardo Faria

Reverse FDI in Europe: An Analysis of Angola’s FDI in Portugal

Lisboa 2011

O CEsA não confirma nem infirma quaisquer opiniões expressas pelos autores nos documentos que edita.


Reverse FDI in Europe: An Analysis of Angola’s FDI in Portugal

Carlos Pestana Barros, Bruno Damásioe João Ricardo Faria

CEsA Centre of African and Development Studies Faculty of Economics and Management Technical University of Lisbon


This paper analyses investment from Angola in Portugal. An open economy model with money laundering is proposed and then tested with a time series Bayesian regression. The result reveals that exports and corruption are the positivedeterminants of Angola FDI in Portugal. Policy implications are derived.

KEYWORDS: FDI, Angola, Portugal, corruption and exports. JEL CLASSIFICATION NUMBERS: F29, O55, F41



The literature on Foreign Direct Investment (FDI) is large and wide and has examined a number of diverse issues, among them, to list a few,domestic capital stock (Desai et al, 2005), economic growth (Prasad et al., 2007), employment protection (Dewit et al., 2009), exports (Helpman et al., 2004), knowledge capital ( Carr et al., 2001), location choice (Becker et al., 2005), multinational characteristics (Zhang and Markusen, 1999), productivity spillovers (Barrios and Strobl, 2002), total factor productivity (De Mello, 1999), andtechnology transfer (Glass and Saggi, 2002). This paper contributes to the literature by examining Angola’s FDI in Portugal. This is a new topic in the literature, since most studies focus on FDI flows from developed countries to poor countries (e.g., De Mello, 1997), either adopting a micro approach with company data (Alfaro et al, 2010; Gorg, Muhlen and Nunnenkamp, 2010) or adopting a macro approachwith national data (Fernandes and Paunov, 2011). However, the analysis of FDI from former colonial African countries in the former colonial European ruler has not attracted attention so far. In our study of Angola’s FDI in Portugal we also assess the impact of corruption. According to IMF Country Report No. 11/346 from December 2011, Angola’s fiscal accounts have exhibited large residual financingitems, cumulatively equivalent to about US$32 billion (25 percent of GDP) from 2007 to 2010. Angolan authorities put forward a number of explanations for this unaccounted money; however Human Rights Watch (2011) has identified a previous major gap in funds, in which more than $4 billion in oil revenues from 1997 through 2002 disappeared, pointing to mismanagement and suspected corruption. Accordingto the corruption index 2011 from transparency international [Guardian, 2011] Angola is among the most corrupt countries in the world, ranking 168 th in a list of 182 countries. Theoretically corruption may act as deterrence or as a helping hand for FDI. On the one hand, corruption is costly for firms (e.g., Murphy et al., 1991), on the other hand, corruption helps firms in the presence ofgovernment failures (e.g., Lui, 1985). Empirically the literature finds evidence that corruption has a negative impact on FDI (e.g., Zhao et al., 2003), specifically, Hakkala et al. (2008) find that horizontal investments (sales to the local market) are deterred by corruption to a larger extent than are vertical investments (which are made to access lower factor costs for export sales). Egger and Winner(2006) show that the importance of corruption has declined over the years and that growth of FDI in non-OECD countries is mainly driven by economic growth and change in factor endowments. In this paper we address the relation between corruption and FDI differently from the above literature. In our approach corruption is one of the main sources of Angola’s FDI in Portugal. Thus corruption in our...
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