Abstract
This paper considers the structural and institutional determinants of investment activity in selected African countries within a neoclassical growth framework. Non-parametric regression techniques, generalized method of moments and a family of panel data estimation techniques are utilized to uncover the intricacies of the relationship. Four main findings emerge; (i) financial openness and institutional quality are the most robust structural and institutional determinants of investment activity 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) the inhibiting effect of financial openness beyond the threshold is potentially mitigated by higher levels of institutional quality, (iv) promoting institutional quality is an effective strategy for facilitating investment activity in Africa.
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Notes
- 1.
Interested readers may want to see Racine (2008; 63–64) for more details.
- 2.
A gentle description of these estimation strategies can be found in the Racine (2008). Nonparametric Econometrics: A Primer.
- 3.
The list of countries are: Botswana, Burundi, Cameroon, Congo, Equatorial Guinea, Gabon, The Gambia, Kenya, Ghana, Malawi, Mauritius, Mozambique, Nigeria, Sierra Leone, South Africa, Swaziland, Tanzania, Uganda, Zambia, Egypt, Morocco, Rwanda.
- 4.
It is often recommended that at least five multistarts be used to achieve the objective function value when computer performance is high. However, due to the many hours it takes to run this, we have decided to use two multistarts as this is not expected to compromise the results in any significant way.
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Chuku, C., Onye, K., Ajah, H. (2017). Structural and Institutional Determinants of Investment Activity in Africa. In: Seck, D. (eds) Investment and Competitiveness in Africa. Advances in African Economic, Social and Political Development. Springer, Cham. https://doi.org/10.1007/978-3-319-44787-2_2
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