Chapter 5: How Does Institutional Quality Moderate the Business Environment in the Attraction of Foreign Portfolio Investment into Africa?

The essence of this study was to ascertain the moderation effect of institutional quality on the business environment and foreign portfolio investment (FPI) nexus. The study covered 40 African countries using data from 2005 to 2023, employing the step-wise system-generalised method of moment (SWS-GMM) estimation strategy. Findings indicated that in the absence of institutional quality, ease of doing business had a negative and significant effect on FPI. Tax incentives had a negative and significant effect on FPI. The interaction of control of corruption with ease of doing business had a positive effect on FPI. Similarly, the interaction of government effectiveness, political stability, regulatory quality and rule of law with ease of doing business had a positive effect on FPI. Contrarily, the interaction of voice and accountability with ease of doing business had a negative effect on FPI. Our result highlights the importance of strong institutions in the attraction of FPI into Africa. The study recommends improvement in the quality of institutions so as to attract more FPI towards the attainment of sustainable development in Africa.