Political Risk, Volume of FDI, and Ownership Strategy: Contextual Analysis of African Markets

Abstract

This research examines the relationship between political risk and the volume of FDI activity and ownership strategy of foreign firms in Africa. Our study employs panel regression models to examine 2,360 FDIs into four low political risk and five high political risk African countries during the period 2010-2017. This data represents FDIs from the top 10 countries with the most investments in Africa (UNCTAD, 2018). We find that there is a progressive increase in the volume of FDI activity by multinationals in high political risk countries, even though low political risk countries remain the preferred FDI destinations. We also find that joint venture (JV) is the preferred ownership strategy by foreign multinationals in high political risk African countries. The preferred ownership strategy in this research helps firms mitigate potential hostile government policies such as expropriations. This research contributes both theoretically and empirically to enrich the political economy and international business literature.