Political Instability and Firm Performance in the Democratic Republic of Congo
Date
2022-06
Authors
Muhoza, Benjamin Kanze
Majune, Socrates Kraido
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Abstract
This study analyses the effect of political instability on firm performance in the DRC,
one of the most unstable countries in sub-Saharan Africa. We use pooled panel data
for three waves of the World Bank Enterprise Survey of the DRC (2006, 2010, and 2013)
to analyse the effect of political instability on five measures of performance: employee
growth, sales growth, productivity, investment, and export status. Results from the
endogenous switching model reveal that political instability adversely affects firm
performance in the DRC. In the presence of political instability, employee growth,
sales growth, productivity, and investment growth significantly decline. Conversely,
firms that do not experience political instability grow in terms of employee growth,
sales growth, productivity, investment, and exporting activities. Our results are robust
when we proxy political instability with losses due to theft, robbery, and vandalism.
For purposes of policy, we recommend that political stability should be enhanced
through political goodwill and legislation that advocates for peace. Firms can also
push for this agenda through their business associations and platforms such as public private partnerships that link them to the government
Description
Keywords
Political instability; Firm performance; Endogenous switching model