ABSTRACT
The quality of political and governance institutions (PGIs) is part of the investment climate of a country. Because of the forward-looking nature of investment, entrepreneurs need a stable and secure environment to invest. “Good” PGIs are viewed as reducing economic uncertainties and promoting efficiency (North, 1981). As reported by the World Bank (2004), better PGIs do improve the investment climate by enhancing bureaucratic quality and predictability and hence, reduce the cost of doing business. Better governance also contributes to the effective provision of public goods essential for productivity growth. Evidently, cross-country correlations using broad proxies for investment climate quality suggest a positive link between the investment climate and private investment decisions.1
