Does political risk matter for infrastructure investments? Empirical evidence

ABSTRACT

Infrastructure assets are vital for economic development and integration, but they also encompass political risks. In Africa, infrastructure assets have remained a paradox where there is great potential for opportunities but very few projects get to the final phases. Adequate infrastructure can propagate the attainment of the Sustainable Development Goals whilst supporting recovery from the Covid-19 pandemic. Drawing from a longitudinal data set from 2000 to 2021 for 35 African countries, the paper empirically examined the nexus between infrastructure and political risk. Several techniques were employed to determine the dynamic effect, cointegration and causality between infrastructure and political risk. Controlling for the potential endogeneity in infrastructure the system Generalized Method of Moments, the relationship between political risk and infrastructure was ascertained. Furthermore, the ARDL-PMG was employed to determine the cointegration and causal relationship between infrastructure and political risk. The results suggest a cointegration between infrastructure assets and political risk. Infrastructure adjusts to changes in political risk to its long-run equilibrium at a speed of adjustment of 16.9 per cent. Bridging infrastructure gaps in Africa requires an extensive set of actions. Thus, the policy derivatives of our findings, suggest controlling the proliferation of political risk to support infrastructure investment. © 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.