Political risk and foreign direct investment in Africa: the case of the Nigerian telecommunications industry

Foreign direct investment (FDI) flows are expected to be influenced by political risk factors. However, studies that evaluate the relationship between political risk and FDI flows in Sub-Saharan Africa (SSA) are scarce. This study examines the impact of political risk on FDI flows in a SSA context using the 12 political risk components published as the International Country Risk Guide (ICRG) by the Political Risk Services Group (PRS) with the Nigerian telecommunications sector as a case study. The study finds that political risk has a significant influence on the inflow of FDI into developing economies in SSA such as Nigeria and that the 12 components affect FDI in different ways. Irrespective of the political risk rating, a consistent improvement in composite political risk enhances FDI inflow. Among the 12 components, corruption, law and order, democratic accountability and investment profile were found to have significant influences on FDI inflow into the Nigerian telecommunications sector. Corruption, in particular, explains nearly two-thirds of the FDI inflow

Evaluating the impact of the Extractive Industries Transparency Initiative (EITI) on corruption in Zambia

The Extractive Industries Transparency Initiative (EITI) is internationally recognised as a leading anti-corruption scheme, which promotes transparency, accountability and good governance of public oil, gas, and mining revenues. This article provides the first rigorous quantitative investigation of the impact of EITI on corruption in Zambia. Using a case-comparison approach, called the Synthetic Control Method (SCM), we find that the implementation of EITI provoked a significant decrease in corruption in Zambia (with the corruption-reducing effect of EITI being, though, much stronger at the earlier stages of implementation)

Institutions and equity structure of foreign affiliates

Question/Issue: We combine agency and institutional theory to explain the division of equity shares between the foreign (majority) and local (minority) partners within foreign affiliates. We posit that once the decision to invest is made, the ownership structure is arranged so as to generate appropriate incentives to local partners, taking into account both the institutional environment and the firm-specific difficulty in monitoring. Research Findings/Insights: Using a large firm-level dataset for the period 2003-2011 from 16 Central and Eastern European countries and applying selectivity corrected estimates, we find that both weaker host country institutions and higher share of intangible assets in total assets in the firm imply higher minority equity share of local partners. The findings hold when controlling for host country effects and when the attributes of the institutional environment are instrumented. Theoretical/Academic Implications: The classic view is that weak institutions lead to concentrated ownership, yet it leaves the level of minority equity shares unexplained. Our contribution uses a firm-level perspective combined with national-level variation in the institutional environment, and applies agency theory to explain the minority local partner share in foreign affiliates. In particular, we posit that the information asymmetry and monitoring problem in firms are exacerbated by weak host country institutions, but also by the higher share of intangible assets in total assets. Practitioner/Policy Implications: Assessing investment opportunities abroad, foreign firms need to pay attention not only to features directly related to corporate governance (e.g., bankruptcy codes) but also to the broad institutional environment. In weak institutional environments, foreign parent firms need to create strong incentives for local partners by offering them significant minority shares in equity. The same recommendation applies to firms with higher shares of intangible assets in total assets

Institutional Quality and the Gains from Trade

While theoretical models suggest that trade is likely to increase productivity and income levels, the empirical evidence is rather mixed. For some countries, trade has a strong impact on growth, whereas for other countries there is no or even a negative linkage. We examine one likely prerequisite for a welfare increasing impact of trade, that is, the role of institutional quality. Using several model specifications, including an instrumental variable approach, we identify those aspects of institutional quality that matter most for the positive linkage between trade and growth. We find that, above all, labour market regulation is the key to reducing trade-related adjustment costs. Market entry regulations, the efficiency of the tax system, the rule of law and government effectiveness do play a role too. In essence, the results demonstrate that countries with low-quality institutions are less likely to benefit from trade

FDI, Regulations and Growth

The paper explores the linkage between income growth rates and foreign direct investment (FDI) inflows. So far the evidence is rather mixed, as no robust relationship between FDI and income growth has been established. We argue that countries need a sound business environment in the form of good government regulations to be able to benefit from FDI. Using a comprehensive data set for regulations, we test this hypothesis and find evidence that excessive regulations restrict growth through FDI only in the most regulated economies. This result holds true for different specifications of the econometric model, including instrumental variable regressions

Party System Institutionalization and Reliance on Personal Income Tax in Developing Countries

This paper explores the effect of party system institutionalization on the relevance of the personal income tax in the tax composition. Based on a fiscal contractualism approach, it is argued that institutionalized political party systems increase the capacity of political actors to credibly commit to fiscal contracts agreed with wealthy taxpayers. Consequently, in countries characterized by institutionalized political party systems wealthy taxpayers accept paying a bigger share of the tax burden, as reflected in a greater relevance of progressive tax types. The analysis of panel data for more than 90 countries from 1990 to 2010 supports this hypothesis, showing that party system institutionalization has an especially significant and strong positive effect on the relevance of the personal income tax where bureaucratic capacity is low. At high levels of bureaucratic capacity the effect disappears. The findings strongly support the claim that, particularly in developing countries, where bureaucratic capacity tends to be limited, taxation is best understood as a problem of credible commitment

PRS Composite, Political, Financial, Economic risk tables for all countries from 1984 through 2013.

PRS group's Researchers Dataset. The Researchers Dataset provides annual averages of all of the metrics affecting composite (Table 2B), political (Table 3B), financial (Table 4B) and economic (Table 5B) risk for the period from 1984 through 2013. It covers 140 countries and is very popular among researchers for its ease of use and timelines. PRSgroup.co

Political risk yearbook

"Political Risk Yearbook includes all 100 of Political Risk Services' Country Reports. Published annually, every report in the Yearbook is updated each year to include the latest report for each country, as of December of the previous year." -- from the Publisher

Political risk yearbook

"Political Risk Yearbook includes all 100 of Political Risk Services' Country Reports. Published annually, every report in the Yearbook is updated each year to include the latest report for each country, as of December of the previous year." -- from the Publisher

Political risk yearbook

"Political Risk Yearbook includes all 100 of Political Risk Services' Country Reports. Published annually, every report in the Yearbook is updated each year to include the latest report for each country, as of December of the previous year." -- from the Publisher