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Impact of Public Investment on Private Investment in Sub‐Saharan Africa: Crowding In or Crowding Out?

Rasmane Ouedraogo (), Hamidou Sawadogo and Relwendé Sawadogo ()

African Development Review, 2019, vol. 31, issue 3, 318-334

Abstract: This paper investigates the possible crowding‐in or crowding‐out effect of public investment on private investment in sub‐Saharan Africa. While this relationship has been theoretically and empirically studied in the literature, most studies used traditional panel fixed effects or Generalized Method of Moments estimators which can potentially lead to biased and inconsistent estimates. We employ heterogeneous parameter models, including the Mean Group, the Common Correlated Effects Mean Group Model, and the Augmented Mean Group estimators, to incorporate the possibility of slope heterogeneity and the presence of cross‐sectional dependence. Using a large sample of 44 sub‐Saharan African countries over the period 1960–2015, we find that on average public investment crowds in private investment in sub‐Saharan Africa. We also find that the impact differs between countries and is higher in countries with a strong private sector.

Date: 2019
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Handle: RePEc:bla:afrdev:v:31:y:2019:i:3:p:318-334