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Macroeconomic Factors and Investment in Africa

Author

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  • K. Mlambo
  • T. W. Oshikoya

Abstract

After more than a decade of implementing economic reform programmes aimed at improving the overall economic environment, investment in Africa is yet to show a robust improvement. This paper suggests that the standard macroeconomic policy variables, such as the exchange rate, trade policy, fiscal and monetary policies, and overall uncertainty explain the sluggish response of investment behaviour to reforms. The paper estimates quadrennial panel data regressions covering the period 1970–96 to study the relationship between macroeconomic policy variables and private investment in Africa. The results show that fiscal, financial and monetary policy, macroeconomic uncertainty and trade variables had a significant impact on private investment. Additionally, the study finds that investors are strongly influenced by the underlying political framework. Thus, political stability matters for investment. Further, the paper shows that Africa remains significantly vulnerable to external shocks, which have had a negative impact on private investment recovery, and suggests the need to diversify the export base as a cushion, especially against terms of trade shocks.

Suggested Citation

  • K. Mlambo & T. W. Oshikoya, 2001. "Macroeconomic Factors and Investment in Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 10(suppl_2), pages 12-47.
    • Handle: RePEc:oup:jafrec:v:10:y:2001:i:suppl_2:p:12-47.
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    File URL: http://hdl.handle.net/10.1093/jae/10.Suppl2.12
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    Cited by:

    1. Dierk Herzer & Michael Grimm, 2012. "Does foreign aid increase private investment? Evidence from panel cointegration," Applied Economics, Taylor & Francis Journals, vol. 44(20), pages 2537-2550, July.
    2. Asongu, Simplice & Amavilah, Voxi & Andrés, Antonio R., 2014. "Economic Implications of Business Dynamics for KE-Associated Economic Growth and Inclusive Development in African Countries," MPRA Paper 63793, University Library of Munich, Germany.
    3. Rune Jansen Hagen, 2002. "Marginalisation in the Context of Globalisation: Why Is Africa so Poor?," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 28, pages 147-179.
    4. Leonce Ndikumana, 2008. "Can macroeconomic policy stimulate private investment in South Africa? New insights from aggregate and manufacturing sector-level evidence," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(7), pages 869-887.
    5. Simplice A. Asongu & Voxi H. S. Amavilah & Antonio R. Andres, 2019. "Business Dynamics, Knowledge Economy, and the Economic Performance of African Countries," Research Africa Network Working Papers 19/004, Research Africa Network (RAN).
    6. Misati, Roseline Nyakerario & Nyamongo, Esman Morekwa, 2011. "Financial development and private investment in Sub-Saharan Africa," Journal of Economics and Business, Elsevier, vol. 63(2), pages 139-151, March.
    7. World Bank, 2008. "Republic of Burundi - Public Expenditure Management and Financial Accountability Review (PEMFAR) : Improving Allocative Efficiency and Governance of Public Expenditure and Investing in Public Capital ," World Bank Publications - Reports 7830, The World Bank Group.
    8. Augustin Kwasi Fosu, 2009. "Country Role Models for Development Success: The Ghana Case," WIDER Working Paper Series RP2009-42, World Institute for Development Economic Research (UNU-WIDER).
    9. Prof. Nnamocha, P. N. & Anyanwu, Austin C. (PhD), 2022. "Domestic Investment and Economic Growth in Nigeria, 1980-2020," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 9(8), pages 122-131, August.
    10. Victor Ushahemba Ijirshar & Joshua Kpelai Nomkuha & Benjamin Bem Bura & Joseph Tarza Sokpo & Mlumun Queen Ijirshar, 2023. "Ease of doing business and investment among West African countries," African Development Review, African Development Bank, vol. 35(2), pages 97-112, June.
    11. Misati, Roseline Nyakerario & Nyamongo, Esman Morekwa, 2011. "Financial development and private investment in Sub-Saharan Africa," Journal of Economics and Business, Elsevier, vol. 63(2), pages 139-151.
    12. Jomo Kwame Sundaram & Rudiger von Arnim, 2008. "Economic liberalization and constraints to development in sub-Saharan africa," Working Papers 67, United Nations, Department of Economics and Social Affairs.
    13. Steve Onyeiwu & Hemanta Shrestha, 2004. "Determinants of Foreign Direct Investment in Africa," Journal of Developing Societies, , vol. 20(1-2), pages 89-106, June.
    14. Assa, Maganga & Abdi, Edriss K., 2012. "Selected Macroeconomic Variables Affecting Private Investment in Malawi," MPRA Paper 40698, University Library of Munich, Germany.
    15. Samuel Kwabena Obeng & Linda Akoto & Felicia Acquah, 2018. "Democracy, Globalization and Private Investment in Ghana," Global Business Review, International Management Institute, vol. 19(1), pages 1-20, February.
    16. Ouédraogo Nosseyamba Benjamin, 2012. "Foreign direct investment in Sub-Saharan Africa," African Journal of Economic and Sustainable Development, Inderscience Enterprises Ltd, vol. 1(1), pages 49-66.

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