DEPARTMENT OF ECONOMICS AND FINANCE WORKING PAPER SERIES • APRIL 2008 Perceived Financial Risk and Divergence in the Economic Growth of Sub-Saharan African Countries Bichaka Fayissa ♣ Middle Tennessee State University, TN Christian Nsiah Black Hills State University, SD Prathibha V. Joshi Gordon College, GA Abstract Since the 1970’s, countries of the Sub-Saharan African region have experienced slow economic growth and development in comparison to other regions of the world. This paper studies the role of perceived financial risk in explaining the divergence of economic growth among Sub-Saharan African countries by employing regression techniques on panel data for the period of 1984 to 2000. Our findings suggest that higher ratings of a country’s investment environment (used as a proxy for reduced perceived financial risk) tend to make the flow of external funds more accessible to African countries and spur their economic growth. JEL Classifications: C33, F20, G32, O40, O5 Keywords: Economic growth, financial risk, foreign direct investment, human capital, physical capital, political rights, openness, panel data. ♣ Bichaka Fayissa, Department of Economics and Finance, Middle Tennessee State University, Murfreesboro, TN 37132, USA. Tel (615)898-2385, Fax (615) 898-5596 Email: bfayissa@mtsu.edu