Does global economic and climate policy uncertainty affect private investment? Evidence from sub‐Saharan Africa

Abstract

AbstractThis study investigates how uncertainty in climate and global economic policies affects private investment in sub‐Saharan Africa (SSA). Using panel data from 41 countries over the period 2000–2022, the study employs a dynamic panel model to estimate the effects of these two types of uncertainty on the private investment‐to‐gross domestic product ratio. The study finds that both global economic policy uncertainty (EPU) and climate policy uncertainty have a negative and significant influence on private investment, implying that higher levels of uncertainty discourage private investors from undertaking long‐term projects in the sub‐region. The study also finds that the effect of uncertainty on climate policy is stronger than that of EPU, suggesting that private investors are more sensitive to the lack of clarity and coherence in the global climate policy framework. The findings are robust to different estimation techniques. The study concludes that reducing policy uncertainty, especially in the area of climate change, is crucial for enhancing private investment and promoting sustainable development in SSA.