From Reform to Credibility: Rethinking How Policy Shapes Investment in Africa

This paper examines how policy reforms influence investment, emphasising the role of policy credibility. Using panel data for African economies, the results confirm that improvements in the policy environment are associated with higher investment. However, these effects are gradual and shaped by persistence in investment behaviour, reflecting the forward-looking nature of capital decisions. The key finding is that the effectiveness of reforms depends on their credibility. Sustained reforms over time generate stronger investment responses, while those subject to reversal or volatility have weaker effects. Policy stability does not independently drive investment; rather, it shapes how reforms are interpreted by investors. These findings suggest that attracting investment requires more than implementing reforms. It requires sustaining them in a consistent and predictable manner. Policy credibility, therefore, emerges as a critical determinant of investment outcomes