Assessing the Bi-Causal Relationship Between Private Investment and Public Investment in SSA: Evidence from Panel Vector Autoregression Approach

Abstract

Research on crowding-in crowding-out hypothesis have been many but show inconsistent results and neglect of the possibility of a bi-causal relationship between private and public investment.  Using data from Sub-Saharan Africa (SSA) and based on a Panel Vector Autoregressive model (PVAR), the results show that public and private physical capitals are compliments and mutually dependent. Consequently, in SSA, public infrastructure attracts private investment much the same as private infrastructure but the response of private to public is faster.  Thus, countries in SSA should undertake policies to bridge the public infrastructural gap as a means of attracting private investment for development. Also, private investors need to do more probably through lobbying or bargaining in order to attract public infrastructure early, when private investment lead public investment.

Keywords: Public investment, Private investment, crowding-in-out hypothesis, PVAR

DOI: 10.7176/JESD/10-12-02

Publication date:June 30^th 2019