The Presence of Foreign Firms in Ghana: The Role of Financial, Infrastructural and Institutional Constraints

ABSTRACT Using logit regression on firm-level survey data, this study examines the effects of various aspects of the business environment on foreign firm participation in Ghana. An analysis of the main constraints on non-mining foreign investment is important in terms of prioritizing reforms of the overall business environment. In addition, assessing the variation of effects according to different firm characteristics matters for government policy formulation aimed at incentivizing sub-categories of foreign firms. The findings suggest that financial factors (access to finance) and institutional factors (the judicial system and land access) are most important in constraining the probability of foreign investment. Distinct effects are obtained depending on firm characteristics relating to the degree of foreign ownership, the size of the firm and the industry in which the firm operates. The effects of the business environment also vary according to the firm’s regional location.