Foreign Direct Investment, Political Business Cycles and Welfare in Africa

Abstract We examine the relation between foreign direct investment (FDI), elections and welfare in Africa using data from 1990 to 2014. Our results show evidence that elections play a positive role in altering the relationship between FDI and welfare as they are considered by investors as risk reduction events. Interestingly, when we split the sample based on the quality of institutions, we find that the interaction between FDI and elections is mostly insignificant in countries with strong institutions. However, the interaction between FDI and elections is positive and significant in countries with weak institutions. © 2019 John Wiley & Sons, Ltd.