The Effects of Sociopolitical Instability, and Macroeconomic Uncertainty on Private Investment: Evidence from Sub Saharan African Countries
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Date
2021-06
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A.A.U
Abstract
This study attempts to examine the effects of sociopolitical instability, and macroeconomic
volatility on private investment, for a panel of 26 SSA countries for the period 1986-15. To
uncover robust results this study exploited the within group, forward orthogonal deviation (FOD)
and system GMM estimators. Results from the three dynamic panel models estimation shows
that, sociopolitical instability is found to have pronounced significant positive effects on private
investment compared to macroeconomic volatility and standard macroeconomic culprits.
Moreover, macroeconomic uncertainty captured by unconditional standard deviations of
exchange rate turns out with deleterious effect on private investment in SSA, and significant in
all models. However, the unconditional standard deviation of inflation rate seems insignificant in
explaining private investment fluctuations in the region. Corroborating the accelerator effects of
output, real GDP showed positive and significant impact on private investment in SSA, while
credit to the private sector, public investment, and external debt service found to have
insignificant effects in SSA and the results are persistent across all the three models. We argued
that sociopolitical stability mainly characterized by: stable government, abetment of conflicts
(internal, external, ethnic and religious), improved socioeconomic conditions and investment
profile, lesser corruption, and heightening of institutional and bureaucracy quality promotes
private investment in SSA. Further, our empirical finding asserts limited production capacity
associated with heavy dependency on imported intermediate and capital goods signifies the
deterring effects of exchange rate volatility. And thus SSA should promote strategies on the
diversification of production activities and thereby make them less dependent to imported
investment goods.
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Keywords
Private investment, sociopolitical stability, macroeconomic uncertainty, SSA Countries, within fixed effect estimator, FOD and system GMM