Business Climate and Domestic Investment in Low-Income Countries in Africa

Abstract

Several economic crises have unraveledand accelerated macroeconomic instabilities plunging African economy into high risky investment climate and deceleration of growth. As postulated by hypothesis, investment climate is a function of varying economic, institutional social and political factors.Low-income countries have turned high risky in the past two decades environment making it costly for investors thus reducing investment profile in worst economic environment. Often times, strategic policy framework fail to support survival and coping strategy which expose local firms at the mercy of break even if not close down point. This study seeks to estimate the short run effect of foreign direct investment on domestic investment in African countries. This study employed the Generalized Method of Moment (GMM). The period of study span 2017 to 2020 consisting twenty-four (24) sample countries in low-income countries. The results of study revealed that institutional quality has a negative but not statistically significant relationship with domestic investment in African countries. Global financial development also posits negativeon domestic investment and has a one percent statistical significance on domestic investment. the result shows that a once percent increase in global financial development increases domestic investment by 10 percent level of significance under ceteris paribus assumption. The coefficient interest rate revealed positive on domestic investment and 5 percent level of significance. Global financial development revealed negative indicating that the market in terms of stability is poor and has insufficient effect on domestic investment in Africa. Thus, much policy framework needs to be directed towards ensuring stability of the market to support for growth in domestic investment in African countries.