Macro and institutional determinants of domestic investment in Sub-Saharan African countries

Abstract

This study examines the determinants of domestic investment in sub-Saharan African (SSA) countries with explicit focus on the role of governance/institutions. The literature has emphases more on the macroeconomic factors that explain investment, neglecting the non-economic causes that could be more important. A panel of 45 selected sub-Saharan African countries and the period 1996–2013 were considered in the estimations using the two-stage least-squares estimation techniques. The results are in line with the findings of existing literature. The study expands on the analysis that governance/institutions play an important role in explaining the long-term pattern of domestic investment in the region. In addition, the study identify that a sustainable level of domestic investment could be attained at a particular governance rating. Therefore, countries with better governance ratings will achieve higher investment levels and domestic investment tends to converge as poor governance is attained.