Effect of Sanctions on FDI - Case study on Sudan and South Sudan

The purpose of this research was to understand the effect of economic sanctions on the amount of incoming FDI to a specific country. The case study chosen for this research was the case of Sudan and South Sudan. Sudan and South Sudan were one country which was under several economic sanctions applied since 1996, however and in 2011 South Sudan got separated from Sudan, and relieved from these sanctions. A difference in difference approach was used to perform a regression analysis on a set of data showing the amounts of FDI and number of FDI projects coming into the two countries during the period from 2003 and up to 2019. The fact that the two countries were originally one country going through identical external and internal economic circumstances allowed the assumption of the validity of the common trend assumption. The existence of sanctions was represented in the regression model using the time variable and the location/country variable. The research main findings was that the number of FDI projects and its amounts was more affected by the existence of natural resources in the country (such as oil in South Sudan) compared to the political situations and implications such as South Sudan separation from Sudan and the existence/lifting of the sanctions .This appeared for example as an increase in the number/amounts during the oil production period in Sudan despite been under the sanctions at the time, while no major increase in FDI occurred for South Sudan after its separation from Sudan despite that the sanctions were lifted. This research represents an initial step in realizing the effect and implications of sanctions on FDI. To further solidify the analysis results and reduce the data noise coming from the relatively small data set, it is recommended to replicate and expand the analysis with a higher number of observations while including other variables such as exports amounts, imports.