Socio-Political Instability and Foreign Direct Investments in Ghana: An ARDL Approach.

Abstract

This paper aims to examine the impact of unstable socio-political periods, characterised by national elections, on foreign direct investments (FDIs) in Ghana. Since the inception of multiparty democracy in 1992, the country had undergone five national elections. These elections however are often characterised by heightened socio-political tensions among opposing parties and have resulted in civil unrest, mass arson, even deaths in the past. During this period the country had also implemented numerous policies to encourage FDIs. Has the unstable socio-political climate during electioneering periods impacted upon the inflow of FDIs in the country; and to what extent? This paper adopts the robust Autoregressive Distributed Lag (ARDL) Bounds cointegration approach as developed by Pesaran et al (2001) in its analysis. The results indicate that socio-political instability exerts a negative influence on FDIs in Ghana in the short- and long-run. In conclusion the paper recommends that in order to maintain its competitiveness as a FDI hub in the West Africa sub region and indeed the world, Ghana needs to work at limiting the often high tensioned national mood that is suggestive of a country teetering towards implosive violence and civil unrest during its national electioneering seasons.

Keywords: Ghana, Foreign direct investments, socio-political instability, cointegration.