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Impact of Public Investment on Private Investment in Sub‐Saharan Africa: Crowding In or Crowding Out?
Author(s) -
Ouédraogo Rasmané,
Sawadogo Hamidou,
Sawadogo Relwendé
Publication year - 2019
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12392
Subject(s) - crowds , crowding out , investment (military) , economics , estimator , sample (material) , generalized method of moments , panel data , public investment , econometrics , private sector , demographic economics , monetary economics , economic growth , statistics , fiscal policy , mathematics , political science , chemistry , chromatography , politics , law
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.