Published Online:January 2025
Product Name:The IUP Journal of Applied Economics
Product Type:Article
Product Code:IJAE010125
DOI:10.71329/IUPJAE/2025.16.1.5-23
Author Name:Ahandi Vincent Lompo and Achille Augustin Diendere
Availability:YES
Subject/Domain:Economics
Download Format:PDF
Pages:5-23
This paper analyzes the effects of political instability on the efficiency of domestic investment in West African Economic and Monetary Union (WAEMU) countries. To this end, the empirical model is estimated using double least squares (2SLS) technique and panel data. The analysis covers the period 2003 to 2023. The study differs from other previous studies in that it takes into account the incremental capital-output ratio (ICOR) as an indicator of the efficiency of domestic investment. The results show that political instability reduces the efficiency of domestic investment. Furthermore, interest rate and terms of trade are channels through which political instability affects the efficiency of domestic investment. To improve the efficiency of domestic investment, the results suggest promoting political stability by mitigating internal conflicts, coups, and police and electoral violence. Reducing political instability increases the efficiency of investment.
African countries are affected by several conflicts such as political instability, terrorism and coups d’état. The Global Terrorism Index (GTI) highlights that terrorism poses serious threats to these countries. Data on terrorism from 2022 to 2023 shows that Burkina Faso (score 8.571) and Mali (score 7.998) recorded more terrorist attacks in terms of incidence score (GTI, 2024). According to GTI, violent conflicts and armed conflicts are closely linked to terrorism. Furthermore, the Global Peace Index (GPI) states that political instability in Africa has increased since 2008 (GPI, 2024).