Foreign Ownership in Sub-Saharan Africa: Do Governance Structures Matter?

Round 1

Reviewer 1 Report

“The Impact of Governance Structures on Foreign Ownership: A Case Study of Sub-Saharan Africa” explores the role of governance structures on foreign investment in Sub-Saharan Africa. The authors use statistical estimations to answer their research questions on foreign ownership and regulations, corruptions, accountability, etc. My questions and concerns are detailed below.

Why ask these questions on governance and foreign ownership if so much research exists on this topic already? Where is the contribution of this piece? Is there a gap this piece fills? Contradictions in the previous research? This was discussed only briefly in the results and conclusion, but needs more attention, especially earlier in the manuscript.

Based on previous research and unique insights from Sub-Saharan Africa, what are the hypotheses? What do the authors predict in regard to answers to the stated research questions? This might be where the authors could highlight their contributions and distinguish themselves from the existing research.

Can the authors add more depth and clarity to why the focus on Sub-Saharan Africa? How generalizable (or not) are the findings? Relatedly, can the authors clarify how this piece is about ‘corporate governance’ (line 73)? It’s not about the rules/laws guiding capital, it’s about attracting capital.  Finally, there is a contradiction. The paragraph before section 2 says there is little research on Africa, but the paragraph after section 2 says there is a lot.

Why use World Economic Forum’s Global Competitiveness Report’s for foreign ownership and not the foreign direct investment (FDI) or greenfield foreign investment inflows (from the World Bank’s WDI for example)? At least as a robustness check, using data on FDI seems apt.

Why are all variables logged? Are they all skewed?

Could the authors use an ordered logit or probit as the estimation method? The dependent variable (DV) is from 1-7 only and so it seems more appropriate than OLS. (if the DV were FDI inflows than makes more sense to use OLS)

I like that the authors did a GMM, but can that model be used with a DV that is only scaled from 1-7?

Why are all the governance independent variables in the model at the same time? Aren’t they highly correlated?  (for example, rule of law and corruption are very highly correlated and that multicollinearity could be affecting the model).

It would add clarity to rename some of the variables, like corruption, to “control of corruption” so the reader can easily see that higher values of the variable relate to less corruption.

The title is somewhat misleading as this article is not a case study.

It is somewhat surprising that foreign investors “like” regulations. Can you add more insight into this finding?

How does the article and findings relate to sustainability issues? It is not immediately clear how this piece is a good fit for the journal Sustainability.

I might encourage the authors to review the manuscript for English language errors and typos.

Author Response

Dear Respected Reviewer,

This letter is to confirm that all final corrections and suggestions from the Editor-in-Chief have been addressed, corrected, and implemented. In addition, the authors have reviewed the manuscript thoroughly for possible style and language changes or substitutions. Please find the following points have been addressed:

• The introduction to the study has been duly modified to capture the focus and key issues pertaining to the topic. A clearer theoretical approach has been also adopted for the better conceptualization of issues been discussed as suggested by the reviewers.

• All factual statements have been appropriately referenced to acknowledge the right authorities.

• The motivation of the study and the gap the study sought to fill in literature has been clearly stated in the study. Again, the reason for the focus in Sub-Saharan Africa region and how generalized the results for the study is has been duly mentioned in the study.

• The seemly contradiction in the paragraph before section 2 and the paragraph after section 2 about the prior research on the subject area has been clarified to understand what the authors wanted to communicate.

• As suggested by the reviewer, data on FDI has been used for robustness checks. For robustness checking using the GMM estimation, FDI data and additional variables are added to the model to check whether the findings of the study are sensitive to changes.

• The reason for using the World Economic Forum’s Global Competitiveness Report for foreign ownership has been clearly explained.

• The topic of the study has been appropriately modified to reflect the study and to eliminate any form of misleading.

• The reason for the log transformation of variables has been appropriately justified in the study.

• The variables used in the study are clearly defined to explain their modalities as suggested by the reviewers. For example, corruption has been changed to “control of corruption” as suggested by the reviewers.

• Possible reasons for the relationship between foreign ownership and regulation have been duly explained in the discussion part of the paper.

• The research questions section of the paper has been reformatted to exclude expressions like Q1, Q2, Q3, etc.

• The choice of variables selected for the study has been justified in line with extant literature. Also, the measure of GDP has been changed to a constant GDP for a given year as suggested by the reviewers.

• The conclusion has been adjusted to focus on important findings of the study and their implications for the research sample. The strengths and limitations of the study have also been included as recommended

• The level of the language was improved as the final proofreading has been done.

In a nutshell, there has been a proper revision of the manuscript thanks to all the comments and recommendations of the reviewers.

Author Response File: Author Response.docx

Reviewer 2 Report

Dear Authors,

I thoroughly read and reviewed the manuscript of the article the impacts of governance structures on the foreign ownership in the Sub-Saharan. The methodology and the regression analysis are the strong elements of the paper.

The weaknesses of the paper are the following. They can be fixed by making some modifications and revisions.

• The robustness check model should include more variables. Foreign Direct Invests (FDI) in the Sub-Saharan Africa (SSA) are also influenced by factors that are included in the article. Studies on the FDI in the SSA indicate that natural resources and the size of the market play very crucial roles in attracting FDI to SSA, and the FDI in the SSA are mainly concentrated in commodity-rich countries. Fiscal and other incentives and the quality of institutions countries offer play their part in attracting FDI.

• The research questions’ section needs basic reformatting. Q1, Q2. Q3...should not be included in the article. For instance, “Q1: Does foreign investors invest in countries characterized by effective government?” can be subtitled: Foreign Investors and Effective Government. Then, the question can be entered under the subtitle. Our paper will attempt to answer, “Does foreign investors…”.

• The OLS model has several limitations. The limitations of the OLS model should be mentioned in the article.

Author Response

Dear Respected Reviewer,

This letter is to confirm that all final corrections and suggestions from the Editor-in-Chief have been addressed, corrected, and implemented. In addition, the authors have reviewed the manuscript thoroughly for possible style and language changes or substitutions. Please find the following points have been addressed:

• The introduction to the study has been duly modified to capture the focus and key issues pertaining to the topic. A clearer theoretical approach has been also adopted for the better conceptualization of issues been discussed as suggested by the reviewers.

• All factual statements have been appropriately referenced to acknowledge the right authorities.

• The motivation of the study and the gap the study sought to fill in literature has been clearly stated in the study. Again, the reason for the focus in Sub-Saharan Africa region and how generalized the results for the study is has been duly mentioned in the study.

• The seemly contradiction in the paragraph before section 2 and the paragraph after section 2 about the prior research on the subject area has been clarified to understand what the authors wanted to communicate.

• As suggested by the reviewer, data on FDI has been used for robustness checks. For robustness checking using the GMM estimation, FDI data and additional variables are added to the model to check whether the findings of the study are sensitive to changes.

• The reason for using the World Economic Forum’s Global Competitiveness Report for foreign ownership has been clearly explained.

• The topic of the study has been appropriately modified to reflect the study and to eliminate any form of misleading.

• The reason for the log transformation of variables has been appropriately justified in the study.

• The variables used in the study are clearly defined to explain their modalities as suggested by the reviewers. For example, corruption has been changed to “control of corruption” as suggested by the reviewers.

• Possible reasons for the relationship between foreign ownership and regulation have been duly explained in the discussion part of the paper.

• The research questions section of the paper has been reformatted to exclude expressions like Q1, Q2, Q3, etc.

• The choice of variables selected for the study has been justified in line with extant literature. Also, the measure of GDP has been changed to a constant GDP for a given year as suggested by the reviewers.

• The conclusion has been adjusted to focus on important findings of the study and their implications for the research sample. The strengths and limitations of the study have also been included as recommended.

• The level of the language was improved as the final proofreading has been done.

In a nutshell, there has been a proper revision of the manuscript thanks to all the comments and recommendations of the reviewers.

Author Response File: Author Response.pdf

Reviewer 3 Report

This is an interesting if not too original study. Try and explain how this study occupies the space other studies have not occupied yet.

Your literature review I would try and rewrite in a style which is not about who said what, but try and compare the various bits and pieces of literature. What are the common themes, what are the themes which are different, what research methods are there and which are good. Also the authors could be actually critical twoards the literature they are reviewing.

You also have 6 research questions, which to my mind are too much. Try and select 2, maximum 3.

The authors should also provide an argumentation why they are choosing the selected variables they are and whether this is in line with the literature or not. At the same time GDP should not be used on current USD, it should be constant GDP for a given year.

The number of observations is quite low (180), this should be increased to achieve representative results. I would also suggest to try and make a fixed effect / random effect OLS model as well as there may be time invariant effects. Try also doing a sensitivity analysis and see whether your results stay the same if certain variables are removed.

Altogether I believe there is room for improvement before this paper can be published.

Author Response

Dear Respected Reviewer,

This letter is to confirm that all final corrections and suggestions from the Editor-in-Chief have been addressed, corrected, and implemented. In addition, the authors have reviewed the manuscript thoroughly for possible style and language changes or substitutions. Please find the following points have been addressed:

• The introduction to the study has been duly modified to capture the focus and key issues pertaining to the topic. A clearer theoretical approach has been also adopted for the better conceptualization of issues been discussed as suggested by the reviewers.

• All factual statements have been appropriately referenced to acknowledge the right authorities.

• The motivation of the study and the gap the study sought to fill in literature has been clearly stated in the study. Again, the reason for the focus in Sub-Saharan Africa region and how generalized the results for the study is has been duly mentioned in the study.

• The seemly contradiction in the paragraph before section 2 and the paragraph after section 2 about the prior research on the subject area has been clarified to understand what the authors wanted to communicate.

• As suggested by the reviewer, data on FDI has been used for robustness checks. For robustness checking using the GMM estimation, FDI data and additional variables are added to the model to check whether the findings of the study are sensitive to changes.

• The reason for using the World Economic Forum’s Global Competitiveness Report for foreign ownership has been clearly explained.

• The topic of the study has been appropriately modified to reflect the study and to eliminate any form of misleading.

• The reason for the log transformation of variables has been appropriately justified in the study.

• The variables used in the study are clearly defined to explain their modalities as suggested by the reviewers. For example, corruption has been changed to “control of corruption” as suggested by the reviewers.

• Possible reasons for the relationship between foreign ownership and regulation have been duly explained in the discussion part of the paper.

• The research questions section of the paper has been reformatted to exclude expressions like Q1, Q2, Q3, etc.

• The choice of variables selected for the study has been justified in line with extant literature. Also, the measure of GDP has been changed to a constant GDP for a given year as suggested by the reviewers.

• The conclusion has been adjusted to focus on important findings of the study and their implications for the research sample. The strengths and limitations of the study have also been included as recommended.

• The level of the language was improved as the final proofreading has been done.

In a nutshell, there has been a proper revision of the manuscript thanks to all the comments and recommendations of the reviewers.

Author Response File: Author Response.docx

Round 2

Reviewer 1 Report

“Foreign ownership in sub-Saharan Africa: Does Governance Structures matter?” has been revised and the text is improved, however there are still many questions and errors. First, there are many, extensive grammatical errors in the manuscript, including in the title itself. I would encourage the authors to edit the text more closely. Second, several of the queries and concerns from the first review have not been addressed.

• What is the argument or hypotheses? Can the authors draw on existing work to better explain what the predictions are or to add more depth in explaining the findings? The work could be better situated in the current research. (for example why investors are attracted to regulations, which is not intuitive to me!)
• The authors state that ALL the variables are logged because of outliers. Why not exclude the outliers? Why are there outliers in all the variables? It is not typical to log all independent variables.
• Are the models robust to an ordered logit or probit analysis? The DV is only a small scale, not a continuous variable.

Author Response

Dear Respected Reviewer,

This letter is to confirm that all final corrections and suggestions from the Editor-in-Chief have been addressed, corrected, and implemented. In addition, the authors have reviewed the manuscript thoroughly for possible style and language changes or substitutions. Please find the following points have been addressed:

• The introduction to the study has been duly modified to capture the focus and key issues pertaining to the topic. A clearer theoretical approach has been also adopted for the better conceptualization of issues been discussed as suggested by the reviewers.

• All factual statements have been appropriately referenced to acknowledge the right authorities.
• In the Research Questions section (Line 135) of the study, arguments for each variable are extensively discussed relying on extant literature. (For instance, from line 161 to line 170, the study provides an argument on why investors will be attracted to countries with quality regulations).
• The nature of the dataset required the log transformation done. Removing outliers from the estimation meant significantly reducing the number of observations in the study. A recent study by Swain et al. (2020) logged all independent variables for the same reason as this study.
• The study used IV-GMM estimation for sensitivity analysis which is equally as good as the Fixed effects/random-effects model. The IV-GMM estimation confirmed the results of the OLS/FGLS model, thus ensuring the robustness of results. Again, the issue of reserve-causality was taken into consideration in estimation. The study used the lags of GDP as an instrumental variable to correct for endogeneity problems persistent between the dependent variable and GDP. This is clearly stated in section 4.2 IV-GMM results of the study.
• Regarding the number of observations, the literature reviewed that used similar datasets like Agyemang et al. (2016) reported a lower number of observations. The study reporting 180 observations is an improvement to literature.

• The conclusion has been adjusted to focus on important findings of the study and their implications for the research sample. The strengths and limitations of the study have also been included as recommended.

• The level of the language was improved as the final proofreading has been done.

In a nutshell, there has been a proper revision of the manuscript thanks to all the comments and recommendations of the reviewers.

Author Response File: Author Response.pdf

Reviewer 3 Report

One of my previous comments was that the number of observations is low (180) and this should be increased. If it is not increased the estimation results are not usable. The authors did not change this, same for the suggestion on sensitivity analysis, FE/RE models. You should reflect on reverse-causality as well.

Author Response

Dear Respected Reviewer,

This letter is to confirm that all final corrections and suggestions from the Editor-in-Chief have been addressed, corrected, and implemented. In addition, the authors have reviewed the manuscript thoroughly for possible style and language changes or substitutions. Please find the following points have been addressed:

• The introduction to the study has been duly modified to capture the focus and key issues pertaining to the topic. A clearer theoretical approach has been also adopted for the better conceptualization of issues been discussed as suggested by the reviewers.

• All factual statements have been appropriately referenced to acknowledge the right authorities.
• In the Research Questions section (Line 135) of the study, arguments for each variable are extensively discussed relying on extant literature. (For instance, from line 161 to line 170, the study provides an argument on why investors will be attracted to countries with quality regulations).
• The nature of the dataset required the log transformation done. Removing outliers from the estimation meant significantly reducing the number of observations in the study. A recent study by Swain et al. (2020) logged all independent variables for the same reason as this study.
• The study used IV-GMM estimation for sensitivity analysis which is equally as good as the Fixed effects/random-effects model. The IV-GMM estimation confirmed the results of the OLS/FGLS model, thus ensuring the robustness of results. Again, the issue of reserve-causality was taken into consideration in estimation. The study used the lags of GDP as an instrumental variable to correct for endogeneity problems persistent between the dependent variable and GDP. This is clearly stated in section 4.2 IV-GMM results of the study.
• Regarding the number of observations, the literature reviewed that used similar datasets like Agyemang et al. (2016) reported a lower number of observations. The study reporting 180 observations is an improvement to literature.

• The conclusion has been adjusted to focus on important findings of the study and their implications for the research sample. The strengths and limitations of the study have also been included as recommended.

• The level of the language was improved as the final proofreading has been done.

In a nutshell, there has been a proper revision of the manuscript thanks to all the comments and recommendations of the reviewers.

Author Response File: Author Response.pdf

Round 3

Reviewer 1 Report

I have no further comments.