Infrastructure Development And External Financing Nexus In Sub-Saharan Africa: Panel Vecm Analysis

Noah Afees O. () and David Olalekan O. ()
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Noah Afees O.: School of Economic Sciences, North-West University, Vaal Campus, South Africa Department of Liberal Studies, Kwara State Polytechnic, Ilorin, Kwara State, Nigeria
David Olalekan O.: School of Economic Sciences, North-West University, Vaal Campus, South Africa

Folia Oeconomica Stetinensia, 2024, vol. 24, issue 2, 229-251

Abstract: Research background It is evident that relying solely on domestic financing cannot bridge the infrastructure gap in the Sub-Saharan African (SSA) region. Therefore, exploring alternative sources of financing becomes crucial to complement domestic efforts and address the infrastructure needs effectively. Purpose This study investigates the relationship between infrastructure development and external financing factors (foreign direct investment – FDI, private participation in infrastructure – PPI, and official development assistance – ODA) by considering the short- and long-run equilibrium and their causal direction. Research methodology These objectives are achieved by employing the panel vector error correction mechanism (PVECM), impulse response functions (IRF), variance decomposition analysis (VDCs), and VAR causality on a dataset covering 43 SSA countries from 2000 to 2021. Results The results reveal the presence of feedback causal relationships between infrastructure development and external financing factors, and PVECM results demonstrate that only private participation in infrastructure has a positive influence on infrastructure development both in the long and short-run, while ODA and FDI only influence infrastructure development in the long- run. Novelty The current study contributes to the existing literature by examining the impact of external financing factors on infrastructure development, with a specific focus on SSA, by considering the three major external financing factors (PPI, FDI, and ODA) as the determinants of infrastructure.

Keywords: infrastructure development; official development assistance; private participation in infrastructure; foreign direct investment; Sub-Saharan Africa (search for similar items in EconPapers)
JEL-codes: C33 C38 H54 N77 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:foeste:v:24:y:2024:i:2:p:229-251:n:1012

DOI: 10.2478/foli-2024-0024

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