MNB3701 Assignment 2
(COMPLETE ANSWERS)
Semester 2 2025 - DUE
September 2025
FOR FURTHER ASSISTANCE
PLEASE CONTACT
, Question 1.1
Using the institution-based view, explain how formal and informal institutions influence
foreign investment decisions in African markets. Give two examples for each institution.
Introduction
Foreign direct investment (FDI) into Africa has grown significantly in the past two decades as
multinational enterprises (MNEs) seek to access new markets, natural resources, and low-cost
labor opportunities. However, investment decisions in Africa are highly influenced by
institutional factors. The institution-based view (IBV) of international business, advanced by
scholars such as Peng, Wang, and Jiang (2008), argues that firms’ strategies are not only
determined by industry conditions and resources (as suggested by the industry-based and
resource-based views) but are also deeply shaped by formal and informal institutions.
Formal institutions include laws, regulations, political systems, property rights, and economic
policies, while informal institutions consist of culture, traditions, social norms, values, and trust-
based networks (North, 1990; Meyer & Peng, 2019). In African markets, the interplay between
formal and informal institutions creates both opportunities and challenges for MNEs. For
instance, an investor evaluating entry into Nigeria, South Africa, or Kenya must weigh the
impact of government policies, legal enforcement, and infrastructure (formal institutions)
alongside cultural diversity, relationship-based business practices, and community expectations
(informal institutions).
This section explores how both formal and informal institutions influence FDI decisions in
African markets, providing two concrete examples for each type of institution to illustrate their
impact.
1. The Role of Formal Institutions in Foreign Investment
Formal institutions refer to the political, legal, and economic “rules of the game” that structure
interactions in society (North, 1990). They are codified and enforceable through official
mechanisms, providing investors with a degree of predictability and security. In Africa, where
institutional environments can vary widely from country to country, formal institutions are often
the most immediate consideration for investors assessing risk.
(a) Political and Regulatory Frameworks
The political stability and regulatory environment of a host country directly influence investor
confidence. Countries with stable governance and transparent regulatory systems attract higher
(COMPLETE ANSWERS)
Semester 2 2025 - DUE
September 2025
FOR FURTHER ASSISTANCE
PLEASE CONTACT
, Question 1.1
Using the institution-based view, explain how formal and informal institutions influence
foreign investment decisions in African markets. Give two examples for each institution.
Introduction
Foreign direct investment (FDI) into Africa has grown significantly in the past two decades as
multinational enterprises (MNEs) seek to access new markets, natural resources, and low-cost
labor opportunities. However, investment decisions in Africa are highly influenced by
institutional factors. The institution-based view (IBV) of international business, advanced by
scholars such as Peng, Wang, and Jiang (2008), argues that firms’ strategies are not only
determined by industry conditions and resources (as suggested by the industry-based and
resource-based views) but are also deeply shaped by formal and informal institutions.
Formal institutions include laws, regulations, political systems, property rights, and economic
policies, while informal institutions consist of culture, traditions, social norms, values, and trust-
based networks (North, 1990; Meyer & Peng, 2019). In African markets, the interplay between
formal and informal institutions creates both opportunities and challenges for MNEs. For
instance, an investor evaluating entry into Nigeria, South Africa, or Kenya must weigh the
impact of government policies, legal enforcement, and infrastructure (formal institutions)
alongside cultural diversity, relationship-based business practices, and community expectations
(informal institutions).
This section explores how both formal and informal institutions influence FDI decisions in
African markets, providing two concrete examples for each type of institution to illustrate their
impact.
1. The Role of Formal Institutions in Foreign Investment
Formal institutions refer to the political, legal, and economic “rules of the game” that structure
interactions in society (North, 1990). They are codified and enforceable through official
mechanisms, providing investors with a degree of predictability and security. In Africa, where
institutional environments can vary widely from country to country, formal institutions are often
the most immediate consideration for investors assessing risk.
(a) Political and Regulatory Frameworks
The political stability and regulatory environment of a host country directly influence investor
confidence. Countries with stable governance and transparent regulatory systems attract higher
