Structural and institutional determinants of investment activity in Africa

Abstract

This paper considers the structural and institutional determinants of investment activity in selected African countries within a neoclassical framework. Generalized method of moments and a family of panel data estimation techniques are utilized in addition to nonparametric kernel regression techniques to uncover the relationship. Three main findings emerge; (i) financial openness and institutional quality are reasonably robust structural and institutional determinants of investment activity in Africa respectively, (ii) there is evidence of nonlinearity in the relationship and there exist a threshold level of financial openness that achieves the highest level of investment, (iii) using interaction terms, the inhibiting effect of financial openness is potentially less in countries with higher levels of institutional quality, (iv) promoting institutional quality is an effective policy towards facilitating investment activity in Africa