Motivated by this literature, in this paper we investigate the state of low investment in Afghanistan by focusing on firms' investment decisions. Our intention in this paper is to understand how risks and uncertainties affect firms' investment decisions in the presence of low financial development. To this end, we employ the data from the World Bank Enterprise and Informal Enterprise Surveys that contain information on a wide range of variables that are potentially important for studying the state of low investment in the country. Critical to our analysis, the surveys comprise questions not only related to firms' access and participation in the financial sector, but also contain information that sheds light on the incidence of crime and corruption-related events together with firms' perceptions of such issues as being a significant obstacle to their operations. For taxonomic purposes, we bunch the outcome variables under the broad category of _risks_ and the perception variables under _uncertainty_ .

Our econometric exercise features a multivariate analysis in which we discern the interaction of numerous factors shaping the investment environment. We give attention to the hypothesis that whether instruments such as participation in the financial sector which are often considered important, if not necessary, for firm expansion act independently of risks and uncertainty faced by firms or not. In other words, does access to financial instruments and services expose the participating firms to newer or higher risks and uncertainty and take away some of the advantages reaped from using such instruments. There arise four main findings from our econometric analysis. First, we find that firms undertaking investments are more likely to experience risks associated with crime and corruption. In addition, this reflects in their perception underlying the uncertainty associated with operations. Though at the extensive margin, both investing and non-investing firms have the same likelihood of making payments for security, the investing firms allocate a larger share of their sales towards security arrangements. Second, we find a similar phenomenon with respect to firms’ access to finance. Firms with bank accounts and loan applications face higher risks and uncertainty. This further lends credence to the thought that participation acts as a signal to expropriating parties that see these firms as better targets having larger surpluses from firm operations. Our third finding corresponds to the formal status of firms. While it is true for the Afghan case that formal firms are larger, both in terms of workforce and sales, they too are disproportionately affected by risks and uncertainty. All the above findings suggest that policy interventions in a volatile economic environment for a country like Afghanistan are not independent of consequent risks and uncertainty. In other words, some benefits of such policies are potentially seized via crime and corruption. Finally, we also find that a large segment of firms headed by female managers perceive crime, corruption, and political instability as being serious roadblocks to operation.

In our final analysis, we turn our attention towards estimating the economic loss from crime-related events. The World Bank enterprise survey reports firms’ loss due to such events together with firms’ 4