The investment climate is the set of factors that shape firms’ incentives to invest. Relevant factors include regulations, laws, infrastructure, and levels of corruption. This report assesses the evidence of low levels of investment in fragile and conflict-affected states (FCASs). It then examines the evidence of a link between an improved investment climate (IC) and economic growth. Recent figures suggest that FDI levels are slightly lower in FCASs than in other low income countries (LICs), although there is considerable variation within both categories and levels are volatile. There is a considerable body of literature supporting the view that improvements in the investment climate lead to economic growth, although there is also widespread criticism of the use of cross-country studies to demonstrate this link. The report concludes with a brief examination of three FCASs case studies, each at different stages of fragility, highlighting some of the key lessons from each case.
