Attracting foreign direct investment is a critical development challenge for many African economies, requiring a nuanced understanding of the institutional and regulatory environment. Mozambique presents a salient case study, where significant natural resource potential coexists with persistent barriers to capital inflows. This article develops a novel diagnostic framework to systematically analyse the relationship between institutional quality and FDI attraction. It aims to identify the specific institutional dimensions most critical for improving the investment climate in resource-rich, developing contexts. The theoretical framework is constructed through a synthesis of institutional economics and international business theory. It employs a multi-level analysis, integrating macro-level governance indicators with meso-level regulatory and sector-specific factors to model investor decision-making. The framework posits that regulatory predictability and contract enforcement capacity are more significant for long-term, non-extractive sector investment than macroeconomic stability alone. A central proposition is that a one-standard-deviation improvement in judicial efficiency could have a disproportionately positive effect on manufacturing FDI. The proposed framework provides a more granular tool for policymakers to diagnose institutional weaknesses that deter investment, moving beyond generic assessments of political risk. Policy efforts should prioritise reforms in specialised commercial courts and transparent licensing procedures. Future empirical research should apply this framework to generate comparative data across similar economies. foreign direct investment, institutional quality, diagnostic framework, investment climate, institutional economics, Mozambique This article's novel contribution is a diagnostic matrix that disaggregates institutional quality into actionable, investor-relevant components, offering a targeted alternative to composite governance indices.
Santos et al. (Tue,) studied this question.