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Determinants of Private Investment Behaviour
Abstract
This study analyses the determinants of private investment in Ghana using a time series analysis and complementing it with a cross-sectional one. From many perspectives, the cross-sectional analysis supports the time series analysis. While some of the individual effects of the components of macroeconomic instability are found to be negligible, the overall measure of macroeconomic instability has been a major hindrance to private investment. The results suggest that policies that address only some components of macroeconomic instability may not be enough to revive private investment. The growth of real credit to the private sector has a positive and statistically significant effect on private investment. The question of finance must therefore be addressed in order to ensure continuing participation of the private sector in investment. Private investment and public investment are found to be complementary and thus there is the need for the government to continue to develop the infrastructural base of the economy to boost the private sector. The econometric results suggest that the military takeovers may have created a climate hostile to private investment. The primary objective of the study is to analyse the determinants of private investment in Ghana between 1970 and 1992. For this purpose, we use both time series and cross-sectional analysis. The cross-sectional analysis will be used to determine whether the factors identified in the time series analysis are still constraints to private investment. Specifically, the study seeks to Estimate a time series model with private investment as the dependent variable to determine significant explanatory variables; Identify the factors that are perceived to influence the investment decisions of private manufacturers by surveying manufacturing firms; and To analyse the consistency of the time series analysis with the cross-sectional analysis.
... Since bank credit is relevant to avail access to working capital for investors where there is capital shortage, the prevalence of good and efficient credit facilities has a positive role to promote private investment. This finding is supported by the study [27,15,10,2,9] among the others and contradict the findings [19]. ...
... The respective sign is as per the researcher expectation; this show that real effective exchange rate has statistical significant this means holding other explanatory variables constant, one percent increase in real effective exchange rate causes 2.69 percent decreases in private investment in the study period. This result is consistent with the findings [9,2,19]. In developing countries import a large amount of good for investment; depreciation of the nation's currency leads to raise the cost of these imported goods and consequently lowers the domestic private investment activity in the country. ...
... This result supported by many empirical papers Bello and Lawanson [6], Asante. [2] but the result is contradict with Adugna [1] Frinmpong and Marbuah [14] Thus, this external debt creates uncertainty in the macroeconomic environment and 'crowding-out' credits allocated for private investment where large debt service payment has involved and may face liquidity constraints in global capital markets because of large sum of unpaid debt service obligations. As `debt overhang' explains large amount of debt eliminates the incentive for investors because returns from investors used for reimburse the existing debt an [9] puts pressure on current and future tax burden on private investors. ...
... This result confirms the empirical works of (Frimpong and Marbuah, 2010;Jongwanich and Kohpaiboon, 2008). However, it is contrary to the finding of (Asante, 2000) which establishes a robust positive relationship between interest rate and private investment. ...
... Notwithstanding its imperative role, lack of access to finance is often cited in surveys as the dominant constraint to private investment activities. There are also empirical evidence of demand for external finance by enterprises that want to expand beyond the limits of self-finance but have historically lacked access to credit (Asante, 2000;Anyanwu, 2006). Moreover, the result submits that DPI activities favour frontier economies that have good infrastructure in terms of good telecommunication (telephone) and electric energy. ...
... Furthermore, even though the results of the regulatory control and rule of law are contrary to theoretical intuitions, investors prefer economies with sound, prudent and effective regulations, laws and policies which protect investors' interest and wealth. The results obtained support Vergara (2004), Mbanga (2002) and Asante (2000), but disagree with Islam and Wetzel (1991). ...
... Ayeni and Nsiah (2020) finds low credit to the private sector as the second major constraint to private investment in Gambia. There is evidence of demand for external finance by enterprises that want to expand beyond the limits of self-finance, but they have historically lacked access to credit (Aryeetey, 2005;Asante, 2000). The consequence of the unavailability of credit is that it makes firms unable to raise funds from outside parties to finance positive net present value projects, either in the form of equity or debt (Myers & Majluf, 1984). ...
... The main challenge facing private investors and enterprises in DEEs is access to affordable credit (Aryeetey, 2005;Asante, 2000;Emran et al., 2007;Jongwanich & Kohpaiboon, 2008;Ofosu-Mensah Ababio et al., 2018). Costs and availability of funds are critical issues for private investors particularly SMEs (Sardo & Serrasqueiro, 2017). ...
... In the case of Ghana, Islam and Wetzel (1991) use the OLS technique to discover a negative public-private relationship, a positive relationship between corporate tax revenue and flow of credit to the private sector, and a negative but negligible real interest rate impact on PI. Although their findings were verified by Akpalu (2002), Asante (2000) contrasted their findings in Ghana, where public investment was developed to crowd-in private investment. Furthermore, empirical studies by Ang (2009), Greene and Villanueva (1991), and Ofosu-Mensah Ababio et al. (2018) have established the negative relationship between interest rates and investment, while studies by (Serven & Solimano, 1992 have shown that credit policy affects investment in a distorted manner in repressed financial markets. ...
This study surveys and synthesizes the literature on foreign and domestic private investment over the period 1980–2022 with evidence from developing and emerging economies. The documentary sources method was used to examine one hundred and forty (140) peer-reviewed articles (selected based on source, journal of publication, database, time frame, relevance language, geographical restrictions, and search descriptions) published in a broad range of internationally recognized journals, with special analytical focus placed on forty (40) recent articles. It provides fresh evidence that literature on overall private investment and that of foreign direct investment have been given paramount interest and attention, but domestic private investment has received relatively diminutive attention to date. This review will serve as a roadmap, indicating the current state, contributions made, and unsolved issues in the extant studies as well as situating works to enrich the literature. It, therefore, offers specific directions for researchers, academics, and practitioners.
... The neoclassical theory which is a version of the accelerator theory was postulated by Jorgenson (1971) and it avers that the desired or optimal capital stock is proportional to output and the user cost of capital which in turn depends on the price of capital goods, the real interest rate, the rate of depreciation and the tax structure (Chirinko, 1993;Asante, 2000). The neoclassical theory provides yet another rationale for the output as a positive factor in the investment function. ...
... Thus, while it may be true that demand for investment declines with the rise in the real rate of interest, realized investment actually increases because of the greater availability of funds. This conclusion applies only when the capital market is in disequilibrium with the demand for funds exceeding supply (Asante, 2000). Neoliberalists identify interest rates as the main determinant of investment. ...
... Mbanga (2002) also discovered that there was a crowding -out effect of debt service ratio, a positive and significant relationship between credit expansion and private investment and that deteriorating terms of trade had negative effects on private investment. Asante (2000) also found out that lack of foreign exchange, corruption and erratic import licensing and rent seeking activities on private investment were also key factors over the study period and that the political dummy representing political stability was highly significant and negative in all trials. ...
Using panel data covering the period 2000-2017 for 35 Sub Saharan African (SSA) countries, this study applied the pooled regression, fixed effects and random effects models as well as the Panel Corrected Standard Error (PCSE) technique in an attempt to analyze the macroeconomic determinants of private investment. Critical diagnostic tests were carried out: unit root tests indicated that the employed data was stationary. Further diagnostic tests also indicated that the fixed effects model is suffering from heteroskedasticity, autocorrelation and cross-sectional dependence. The PCSE technique was applied to counter the detected statistical problems. Main study findings indicated that, in the SSA region, private investment was determined by GDP, real interest rates, public investment and inflation. The research then proposed four policy recommendations for consideration by the SSA countries in order to materialize the much awaited private sector growth.
... Private sector investment requires affordable financing. Unfortunately, in Ghana, firms in the private sector are unable to raise much funds needed to finance their investments [7,8], and this may be due to high priced funds i.e. high financing cost which is a major obstacle in Ghana. Financing cost is defined to mean factors that affect the cost of funds directly. ...
... Asante [7] in a study to analyze the determinant of private investment in Ghana for the period 1970-1992, using times series analysis, cross sectional analysis and the ordinary least square (OLS), finds that the overall measure of macroeconomic instability has been a major hindrance to private investment; while credit to the private sector has a positive and significant effect on private investment; public investment was complementary to private investment; the real GDP growth shows a positive sign in all the trials; but military takeovers created a climate hostile to private investment. Based on the findings, the author recommended that policies that address only some components of macroeconomic instability may not be enough to revive private investment. ...
... Following the empirical works done by Anyanwu [1], Asante [7], Frimpong and Marbuah [8], Ribeiro and Joanilio [36] and others, it is clear that private investment depends on three broad categories of variables: Keynesian, Neoclassical and Uncertainty variables. ...
... The findings reveal that private investment is positively correlated to GDP growth, to credit extended to the private sector, and to government investment in infrastructural projects. Asante (2000) utilizes time series analysis coupled with cross-sectional analysis to investigate the determinants of private investment in Ghana. The study reveals that the growth of real credit to the private sector has a positive and statistically significant effect on private investment. ...
... Economic literature around the impact of inlflation on private investment are not consistent. Asante (2000) describes that an increase in the level of inflation erodes private savings and thus puts a damper on private investment demand. Haroon and Nasr (2011) investigate the role of private investment in the economic development of Pakistan and discover that the impact of inflation on private sector investment is positive. ...
... From the results, the coeffieicnt of GDED indicates that if the level of inflation increases by 1 per cent, real priavte investment will decline by 0.02 per cent signifying the importance of price stability for private investment stimulation. This results conform to studies presented in the literature, specifically Asante (2000). Per capita GDP has a positive and strongly statisitically significant coeficient confirming that private investment is a positive function of economic growth. ...
The study empirically examines the determinants of private investment in Lesotho over the period 1982 – 2013. The results indicate that private investment is positively influenced by the level of economic growth and public investment while it is negatively affected by increase in the price level. The highly significant and positive coefficient of economic growth confirms the accelerator principle in Lesotho while that of public investment outlines the significant role of government in laying down infrastructure to crowd in private investment. The negative coefficient of the general price level symbolizes the importance of price stability in stimulating private investment. In addition, the study confirms that macroeconomic instability negatively affects private investment in Lesotho. The Granger-Causality test reveals that there is unidirectional causality running from private investment to per capita GDP, and bidirectional causality between public and private investment. The policy recommendation following the findings is that government should engage in investment of infrastructural projects in the short-run to better aid smooth private investment in the long-run.
... A positive complimentarily relationship between public and private investment exists in developing countries (Serven and Solimano, 1991). In the case of Ghana, Asante (2000) found that the relationship between public and private investment was a positive complimentary relationship, especially when public investment is concentrated on infrastructure. Additionally, the positive effect of public investment can be reduced by the negative effect of the crowding-out with the net effect depending upon the magnitude of the two influences (Wai and Wong, 1982). ...
... In addition, the equivalence between internal and external finance is rejected by empirical studies (Bond and Jenkinson, 1996). Also, the growth of real credit to the private sector plays a significant effect on the private investment, and the relationship between them is positive in Ghana (Asante, 2000). ...
... In addition, the macroeconomic instability, measured by the variability of both the real exchange rate and real output growth, affects private investment negatively in developing countries (Serven and Solimano, 1991). While each individual macroeconomic instability measure was insignificant in Ghana, the constructed measure should play a role if all of these four measures are considered simultaneously (Asante, 2000). Also, the political stability and government"s creditability are expected to have a significant effect on investment (Asante, 2000). ...
... The Ghana Investment Promotion Centre (GIPC) was set up with the main objective of promoting investment.Measures that have been taken in recent years to improve the investment climate include gradual removal of administrative and other bottlenecks, review of the tax structure as it relates to private investment and liberalization of the financial system. Corporate tax for some enterprises was reduced to 45% maximum (1991) from 55% previously (Asante, 2000). In spite of the policies above, private investment trends in Ghana have generally not been impressive. ...
... Keynes (1936) was the first to posit an independent investment function of the economy. As stated in chapter one, Keynes argued that ex-ante savings and ex-ante investment, in general, cannot be equal because they are undertaken by different decision makers with different motivations (Asante, 2000). Although Keynes agreed with the classical economists that investment is determined by interest rate, he asserted that savings was largely dependent on income rather than interest rate. ...
... Also, Jorgenson et al (1971) posited the neoclassical approach, which is a version of the flexible accelerator model. In this approach, the desired or optimal capital is proportional to output and the cost of capital which depends on real rate of interests (Asante, 2000). According to the neoclassical theory, investment is inversely related to the user cost of capital. ...
... A positive complimentarily relationship between public and private investment exists in developing countries (Serven and Solimano, 1991). In the case of Ghana, Asante (2000) found that the relationship between public and private investment was a positive complimentary relationship, especially when public investment is concentrated on infrastructure. Additionally, the positive effect of public investment can be reduced by the negative effect of the crowding-out with the net effect depending upon the magnitude of the two influences (Wai and Wong, 1982). ...
... In addition, the equivalence between internal and external finance is rejected by empirical studies (Bond and Jenkinson, 1996). Also, the growth of real credit to the private sector plays a significant effect on the private investment, and the relationship between them is positive in Ghana (Asante, 2000). ...
... In addition, the macroeconomic instability, measured by the variability of both the real exchange rate and real output growth, affects private investment negatively in developing countries (Serven and Solimano, 1991). While each individual macroeconomic instability measure was insignificant in Ghana, the constructed measure should play a role if all of these four measures are considered simultaneously (Asante, 2000). Also, the political stability and government"s creditability are expected to have a significant effect on investment (Asante, 2000). ...
... Cash flows ( CF ) are a proxy for financial constraints. Asante (2000) shows that investment decisions are dependent on neoclassical variables (Tobin's Q), Keynesian variables (internal funds) and uncertainty variables (inflation rate). ...
... Furthermore, the study shows that previous investment level is a good predictor of current investment under hyperinflation, which is consistent with previous studies (Fanelli et al., 2002;Asante, 2000), which show that the adjustment to the targeted investment level is not instant. The adjustment factors are 0.66 and 0.43 under hyperinflation and dollarization, respectively. ...
Zimbabwe's experiences with hyperinflation (2000-2008) and dollarization (2009-2019) have implications for investment decisions. The uniqueness of these periods justifies the need for critical analysis as decisions on whether to invest are sensitive to such structural changes. Because of this, the study uses the modified Tobin's Q model to examine the main determinants of investment behavior. A dynamic and non-linear model is applied using data from a panel of 30 listed and non-financial firms from 2000 to 2016. The main determinants of investment decisions are managerial discretion or power, financial constraints, uncertainty, and access to external sources of finance. Findings are sensitive to the period of analysis and consistent with the pecking order hypothesis. Interactions between investment expenditure and other corporate financial decisions are confirmed. Policymakers need to take a differentiated approach to make investment decisions. It is desirable to develop policies sensitive to prevailing market conditions, reduce financial constraints and remove informational inefficiencies to improve the uptake of debt finance and other external funding sources. Monitoring executive decision-making power will reduce entrenchment levels and hence the agency problem. Firms should improve on future financial flexibility by taking less debt, and a dynamic investment strategy sensitive to firm size is more plausible.
... The positive relationship between Treasury bill rate and NTEs is due to the fact that being the rate at which the government borrows from the public, a rise in the Treasury bill rate will entice many people to buy Treasury bill. Government then uses the resources to provide social and economic infrastructure, which have been found to boost private sector initiatives (Frimpong & Marbuah, 2010;Asante, 2000). Finally, even though the real effective exchange rate (lrer) had the expected sign, it was not statistically significant. ...
... However, the net effect is still positive (0.005), which is contrary to expectation. The finding indicates that the investments government fund with resources obtained from the sale of Treasury bills complement private investment in Ghana (Frimpong & Marbuah, 2010;Asante, 2000). Finally, the error term is negative and significant at the 1 per cent significance level. ...
The government of Ghana has implemented a number of policies to strengthen the production and export of non-traditional products as a way of diversifying exports in Ghana with very little success. Foremost among these policies is the liberalisation of exchange rate. Meanwhile, the exchange rate has been very volatile. The study, therefore, examines the effects of exchange rate volatility on non-traditional exports in Ghana.This study employed Autoregressive Distributed Lag (ARDL) cointegration estimation technique for the investigation. The results indicate that exchange rate volatility negatively impacts Ghana’s non-traditional exports. Also, the effect is greater in the long- run than it is in the short-run. Other results also show that world income, growth rate of the economy and Treasury bill rate promote non-traditional exports, but real effective exchange rate does not. rThe value of the paper lies in the discussion of the short-run and long-run effects of exchange rate volatility on non-traditional exports in the Ghanaian context.
... skilled labour, raw materials etc.). Thus, the public investment in the concerned sector is likely to crowd out the private investment in that sector (Ajide and Lawanson 2012;Fowowe 2011;Frimpong and Marbuah 2010;Asante 2000). ...
... Moreover, trade openness shows developing countries' access to the latest technology (Hamuda et al. 2013). Trade liberalisation reduces the trade barriers, creates an advantage to the export sector, and improves the current account balance and increases investment incentives (Naa-Idar et al.,2012;Asante 2000). Busari and Omoke (2008) state that trade policy practices impede and negatively affect the investment through the high cost of imports, especially for the firms having more significant import content. ...
The present study empirically analyses the sector-wise private investment behaviour in Pakistan using the autoregressive distributed lag model from 1964 to 2015. The results indicate that credit availability and infrastructural development considerably affect private investment in agriculture, industry, and services. However, the user cost of capital does not have any influence on investment. The response of investment demand to credit availability is inelastic (i.e. 0.259) for agriculture but relatively higher for the industrial sector with a magnitude of 0.554. However, its value is slightly higher than the unit elastic value (1.059) in services. Fertiliser use positively impacts investment in agriculture, which is negatively affected by access to water. The values of the corresponding coefficients are 0.726 and −2.731, respectively. Remittances and foreign direct investment positively contribute to private investment in services. Openness significantly demotes private investment in services, and its magnitude is relatively high (−5.127). The findings signify and implicate the role of water availability, government support, and financial development in the agricultural sector. However, a stable political environment and cost of investment are very important for investment activities in the industry. Nevertheless, the role of openness in investment in services is vital.
... The positive relationship between Treasury bill rate and NTEs is due to the fact that being the rate at which the government borrows from the public, a rise in the Treasury bill rate will entice many people to buy Treasury bill. Government then uses the resources to provide social and economic infrastructure, which have been found to boost private sector initiatives (Frimpong & Marbuah, 2010;Asante, 2000). Finally, even though the real effective exchange rate (lrer) had the expected sign, it was not statistically significant. ...
... However, the net effect is still positive (0.005), which is contrary to expectation. The finding indicates that the investments government fund with resources obtained from the sale of Treasury bills complement private investment in Ghana (Frimpong & Marbuah, 2010;Asante, 2000). Finally, the error term is negative and significant at the 1 per cent significance level. ...
The government of Ghana has implemented a number of policies to strengthen the production and export of non-traditional products as a way of diversifying exports in Ghana with very little success. Foremost among these policies is the liberalization of exchange rate. Meanwhile, the exchange rate has been very volatile. The study, therefore, examines the effects of exchange rate volatility on non-traditional exports in Ghana.This study employed Auto-regressive Distributed Lag (ARDL) co-integration estimation technique for the investigation. The results indicate that exchange rate volatility negatively impacts Ghana’s non-traditional exports. Also, the effect is greater in the long- run than it is in the short-run. Other results also show that world income, growth rate of the economy and Treasury bill rate promote non-traditional exports, but real effective exchange rate does not. The value of the paper lies in the discussion of the short-run and long-run effects of exchange rate volatility on non-traditional exports in the Ghanaian context.
... These opposing theories imply the possibility for the existence of a threshold effect of interest rate on private investment. Though studies have been undertaken on private investment in Ghana (see for instance, Ababio et al., 2018;Obeng et al., 2017;Eshun et al., 2014;Akpalu, 2002;Frimpong and Marbuah, 2010;Asante, 2000), these were limited to the symmetric interrelation between the rate of interest and private investment, which produced inconclusive outcomes. This paper contributes to this growing literature from two specific angles. ...
... With respect to Ghana, Asante (2000) conducted an analysis on the causal factors of private investment using time series data from 1970 -1992. Findings from the study revealed that funds to the private sector, inflation-adjusted exchange rate, and public investment have a positive effect on private investment, with public investment supporting possible complementary effect. ...
This paper investigates the effect of interest rate on private investment and determine the threshold level beyond which interest rate becomes detrimental to private investment in Ghana. The paper employed annual time series data from 1986-2016. To investigate the effect of interest rate on private investment, the paper employed the autoregressive distributed lag (ARDL) model, while the quadratic function and conditional least square procedures were employed to estimate the interest rate threshold. Results from the ARDL model revealed positive long and short run effect of interest rate on private investment, thus confirming the McKinnon-Shaw hypothesis in Ghana. However, results from the quadratic function and conditional least square model found the threshold of 23.59% and 24% respectively, beyond which interest rate impacts negatively on private investment in Ghana. Thus, the paper recommends the deepening of the financial sector reforms, improving competition in the financial sector as well as maintaining macroeconomic stability.
... In this study, which found a one-way causal relationship from the RIR to PI in both the short and long term, the impact of interest rate shock on PI was negative during all periods. Asante (2000) investigated the determining factors of PI in Ghana with the time series analysis. The study revealed that PI and public investment are complementary and therefore the government needs to maintain infrastructure to increase private sector investments. ...
... In their study, Pesaran, Shin and Smith (PSS) (2001) proposed an Autoregressive Distributed Lagged (ARDL) model, which gives reliable results even in the case that the integration order of times series is either I(0) or I (1). Below an ARDL model where yt is a dependent variable and are independent variables specified as: ...
The primary purpose of this research is to identify and evaluate the key drivers of private investment (PI) in Turkey. The corporate tax, private sector credit, GDP per capita, exchange rate, inflation and interest rate were chosen as predictors. These variables were analyzed using time series analysis methods and annual data for the period of 1975-2018. The cointegration relationship between the variables was investigated through the use of an Autoregressive Distributed Lag (ARDL) bound test because of the flexibility it offers with regards to the number of variables and the degree of integration between the variables. In the long run, an inverse impact of corporate taxes and inflation was observed on PI. The impact of private sector credit, GDP per capita, and exchange rate was positive on PI. However, no significant relationship was observed with interest rates. These findings offer policymakers important insights regarding decisions to promote investments in Turkey.
... The existence of an independent investment function in the economy was presented by Keynes in 1930s from which many investment theories have drawn, (Asante 2000); (Agidew 2014 (Kilindo 2016). The basic notion of flexible accelerator model is that; the larger the gap between the existing capital stock and the desired capital stock, the greater the firm's rate of investment. ...
... Borrowing from the flexible accelerator model as discussed in Asante (2000) and Agidew (2014), our model derivation began by assuming an investment function of the form (2) The hypothesis is that firms' investment (I) seeks to fill a fraction ( ) of the gap in the existing capital stock between the previous year (K ) and the desired capital stock (K ). The basic notion of the model is that; the larger the gap between the existing capital stock and the desired capital stock, the greater the firm's rate of investment. ...
This study explores the effect of public debt on private investment in Tanzania. Secondary data for the period of 1970-2016 were collected from National Bureau of Statistics (Tanzania), Bank of Tanzania, World Bank, and scholarly journals. An Autoregressive Distributed Lag (ARDL) bound test to cointegration is used in this study. Results suggest a significant evidence of nonlinear long run and short run relationship between external debt and private investment. However, Granger causality test suggests that this relationship is rather a co-movement than causal. At 5% level of significance, there is no significant evidence of long run and short run relationship between domestic debt and debt service on one hand, and private investment on the other hand. However, the combined effect of domestic and external debt on private investment is statistically significant both in long run and short run. The study recommends the government to adopt strict policies on project implementations to ensure positive returns of borrowed funds and closely monitoring of public debt, particularly external debt on which private investment is more responsive than domestic debt and debt service, despite its sustainability at present.
... The lowest rating is given to a country embroiled in an unending civil war (Aysan et al., 2006). The low internal conflicts of the host country attract the inflow of foreign investment (Asante, 2000;Asiedu, 2002;Khan, 1997). Alesina and Perotti (1996) highlighted the fact that internal conflicts generate an uncertain politico-economic environment, raising risks and reducing investment. ...
... The results are in line with the argument that lowering the internal conflicts is effective to boost foreign direct investment. Similar results were obtained by Asante (2000), Asiedu (2002) and Khan (1997). ...
The objective of this paper is to investigate the effects of fluctuations in selected political risk indicators on foreign direct investment in Pakistan. The results of time series data from 1984 to 2013 showed that there is a significant variation in all selected political risk indicators. The fluctuations recorded in political risk indicators during the last three decades demonstrate a strong relationship with the variation in the foreign direct investment inflow in Pakistan. The ARDL results show that there exist a co-integrated relationship between political risk indicators and foreign direct investment. Our results show that the government stability and low external conflicts encourage the inflow of foreign direct investment in the long run while investment profile in the short run. The internal conflicts and poor law and order situation discourage the inflow of foreign direct investment in the long run. Our study suggests that the government and its institutions must focus on minimizing the political risk indicators to make visible improvements to attract more inflow of foreign direct investment in Pakistan especially from China and other developed countries.
... That is, marginal product of the physical infrastructure in private sector is positive (Prud'homme, 2005;Fay andMorrison, 2007 andLi andLi, 2009). The indirect effect suggests that public physical infrastructure and private investments are complimentary goods that are why, public physical infrastructure services must be provided to boost the private investment (Asante, 2000). Provision of public physical infrastructure raises rate of return of private capital, at one hand and on the other hand, it acts as a substitute that crowds out private investment. ...
... Many researchers including Aschauer (1987 and1989), Looney (1997), Asante (2000) and Prud'homme (2005) have concluded that public infrastructure is an efficient input for output growth. Others (Mankiw et al., 1992;Benhabib andSpiegel, 1994 andDutt andRavaillon, 1998) have included human capital as a productive input too. ...
Purpose: Public physical infrastructure development has fairly large impacts on private sector investment decisions and through this; it can affect economic performance (growth). The current study intends to explore the course in which public infrastructure affects private sector investment in Pakistan and whether there exist long run equilibrium between them or not. Time series annual data from 1972 to 2015 has been employed. Instead of using a single infrastructure indicator, the study has constructed a multidimensional composite index through principal component analysis (PCA). Real gross fixed capital formation is used as the proxy of private sector investment. The long run relationship is determined by Johansen’s co-integration technique after checking for the order of integration. The empirical evidence shows that physical infrastructure availability is positively and significantly affecting private sector investment decisions. In addition, credit to private sector, per capita GDP, work force and inflation rate are positively and significantly affecting private investment. Further, private investment is sensitive to public physical infrastructure availability not only in long run but also in short run. A statistically significant and negative ECT (-1) term confirms the long run relationship and convergence towards equilibrium in case of Pakistan. Findings of the study show that public physical infrastructure services endorse the private investment both in the long run and the short run
... The positive relationship between Treasury bill rate and NTEs is due to the fact that being the rate at which the government borrows from the public, a rise in the Treasury bill rate will entice many people to buy Treasury bill. Government then uses the resources to provide social and economic infrastructure, which have been found to boost private sector initiatives (Frimpong & Marbuah, 2010;Asante, 2000). Finally, even though the real effective exchange rate (lrer) had the expected sign, it was not statistically significant. ...
... However, the net effect is still positive (0.005), which is contrary to expectation. The finding indicates that the investments government fund with resources obtained from the sale of Treasury bills complement private investment in Ghana (Frimpong & Marbuah, 2010;Asante, 2000). Finally, the error term is negative and significant at the 1 per cent significance level. ...
... However, on the other side of the same coin; Zimbabwe is cursed in the sense that, it is still amongst the world's least developed countries; in spite of all her abundant natural resource endowments, most of which are not only lying idle but also mature for exploitation. The economy of Zimbabwe is riddled with poverty, inequality, informality, chronic and recurrent phases of economic stagnation, poor institutional climate (lack of 1 Authors such as Khan & Reinhart (1990), Serven & Solimano (1990), Coutinho & Gallo (1991), Levine & Renelt (1992), Sakr (1993), Oshikoya (1994, Ronge & Kimuyu (1997), Ghura (1997), Ahmed & Miller (1999), Beddies (1999), Mamatzakis (2001), Laopodis (2001), Were (2001), Badawi (2003Karagol (2004), Badawi (2005; Frimpong & Marbuah (2010), Ajide & Lawanson (2012); Muyambiri et al (2012), Augustine (2014) and Ayeni (2014). 2 Studies such as Seck & El Nil (1993), Oshikoya (1994), Calamitsis et al (1999), Gyimah-Brempong & Traynor (1999), Asante (2000), Ndikumana (2000, Seruvatu & Jayaraman (2001) andHoeffler (2002) ...
... Private investment plays a pivotal role in solving economic problems such as poverty and unemployment especially for developing countries. Serven & Solimano (1990); Chibber & Dailami (1990); Coutinho & Gallo (1991); Ghura & Hadjimichael (1996 Private investment boosts productivity and accelerates economic growth Solow (1956); Yolopoulost & Nugent (1976); Lucas (1988);Romer (1990); Khan & Reinhart (1990); Green & Villanueva (1991); Levine & Renelt (1992); King & Levine (1994); Ghana & Hadjmicheal (1995); Blomstrom et al (1996); Patnaik & Joshik (1998); Anwer & Sampah (1999); Collier & Gunning (1999); Durlauf & Quah (1999);Asante (2000);Ndikumana (2000); Seruvatu et al (2001); Podrecca & Carmeci (2001); Devarajan et al (2001); Easterly & Levine (2001);Hoeffler (2002);Bayraktar (2003);Ouattara (2004);Durham (2004); Tarawneh (2004);Ahuja (2007); Khan & Khan (2007); Majeed & Khan (2008); Jongwanich & Kohpaiboon (2008); Muhamad & Rabil (2008), Frimpong & Marbuah (2010); Frimpong & Adam (2010 Table 1 has presented the importance of private investment in any economy, with empirical research supporting the fact. The supporting evidence encourages proper concentration of supporting private investment growth for increased benefits over time. ...
The worst of the ailments distressing the economy of Zimbabwe continue to be sycophantically dubious and characteristically dystopian policies that are still causing malicious effects on private investment and yet private investment is an indisputably powerful means for sustainable economic growth and development. Private investment in Zimbabwe has been significantly low for the past three decades and yet the private investment that private investment is the backbone of every economy, of which Zimbabwe is not an exception. Motivated by the concern on the persistent retrogressive contribution of private investment to GDP as well as the incessant underwhelming economic growth in Zimbabwe, this study systematically reviews the determinants of private investment in Zimbabwe. Results show that GDP and public investment are the most powerful factors that affect private investment in Zimbabwe. The study recommends attention to be made to all identified factors (that is, GDP, public investment, interest rate, private sector credit and political uncertainty), paying particular attention to the main determinants of private investment, that is GDP and public investment.
... Empirical findings from Nigeria's. Ajide & Lawanson, 2012 [2], Senegal's (Ouattara, 2004 [18], and Asante, 2000 [4], have shown that a higher real GDP growth rate encourages domestic private investment. (Ghura & Goodwin, 2000) In Asia and Latin America, real GDP growth has a stimulant effect on private investment, but this effect is insignificant in Sub-Saharan Africa. ...
One of the main engines of economic is private investment. As a result, the objective of this study was to investigate determinants of private investment in Ethiopia. The researcher employed a quantitative research approach with an explanatory research design to achieve the objective. study empirically tests whether Real GDP, inflation rate, real interest rate, foreign direct investment, tax rate, exchange rate, population growth rate, unemployment rate, international trade openness, education affect the growth of private investment in Ethiopia or not. The study focused based on 30 years of secondary data (i.e. from 1991 to 2020) on key variables. Multiple regressions using the ARDL model with appropriate software E-views 9 was applied. The ECM which indicates the speed of adjustment from short run towards long run. The main finding of the study indicated ln real GDP, population growth rate, rate interest, trade openness, and unemployment rate was statistically significant at 5% level of significance in the long run and short-run and also exchange rate was a positive and statistically significant effect on private investment in only short-run. Finally unemployment has adverse effect on private investment, the policy choice on the matter need a vigilant decision. Combined policy tools shall be used to achieve the great short run and long run targets.
... Despite these results, further empirical research that considers a range of contexts and varied macroeconomic activity is still necessary to properly understand the impact that public debt has on Ghana's economic growth. But by examining the impact of public debt on the Ghanaian economy, this study tries to fill in the contextual gap in the body of literature that spans the years 1980 through 2022 (Asante, Y. (2000). ...
Using the Ordinary Least Square Technique, the research investigated the impact of public debt on economic growth in Ghana from 1980 to 2022. The Augmented Dickey Fuller (ADF) technique was also employed in the study to assess time series data stationarity. The time series plot was used in the study to assess the patterns in public debt and economic growth. To examine the impact of public debt on economic growth, the Ordinary Least Squares Method was utilized. The research showed a significant negative relationship between public debt and economic growth (GDP) across the study period. This suggests that the Ghanaian economy's sluggish growth is primarily due to the government's huge amounts of debt. Internal revenues that could have been used to propel expansion and growth are diverted to debt servicing both internally and outside. This has a rippling effect on the economy, and it is a major issue that the country should be able to look at and devise inventive methods for generating
revenues while reducing excessive government expenditure. Over the years, government of Ghana has maintained a budget deficit and had to borrow to pay
the salary of public sector workers. This is due to a lack of adequate fiscal policy to regulate policymakers' operations and spending habits. The country is also not coming up with new ways to generate revenue.
Key Works: Public Debt, Economic Growth, ADF, OLS, Debt Financing, Budget Deficits
... Thus, while it may be true that demand for investment declines with the rise in the real rate of interest, realised investment actually increases because of the greater availability of funds. This conclusion applies only when the capital market is in disequilibrium with the demand for funds exceeding supply (Asante, 2000). Neoliberalists identify interest rates as the main determinant of investment. ...
This study examines and analyses the determinants of private sector growth in Nigeria. The dependent variable is Private Sector Growth (PSG) and the independent variables are Real Gross Domestic Product (RGDP), Interest Rate (INTR), Per Capita Income (PCI), Inflation Rate (INFR), Exchange Rate (EXR), Broad Money Supply (BMS). The data for the study were sourced from CBN Statistical Bulletin, 2019 / 2020 edition from 1981 to 2020. The study employed Cointegration and Error Correction Mechanism as the main analytical tool. It also applied the unit root test and results showed that the data were integrated at order one while the long-run relationship among the variables was confirmed using the Johansen (1988) cointegration test. Estimates of the Error Correction Model result showed that Interest Rate (INTR), Exchange Rate (EXR) have a negative significant relationship with the determinants of private sector growth in Nigeria, Broad Money Supply (BMS) has a negative significant relationship with the determinants of private sector growth in Nigeria. In conclusion from the above results, it was observed that the determinants of the private sector growth in Nigeria contributed to the improvement and enhancement of Interest Rate, Exchange Rate and Broad money Supply in Nigeria. It was recommended that interest rate, exchange rate and broad money supply have a significant positive and negative relationship between interest rate, exchange rate and broad money supply with the determinants of private sector growth in Nigeria base on this result: it is recommended that continued attraction of real sector development from private investors would boost economic growth in Nigeria. And also to develop human capital for Nigeria would be to put in place policies and infrastructures that could encourage private investment inflows.
... Credit to the private sector is found to play a major role in private investment. Thus, the availability of credit enhances investment by the private sector (Asante, 2000;Badawi, 2004;Lesotlho, 2006). Savings in SSA is also found to be a booster of private investment. ...
Purpose
This study investigates the effect of government domestic payment arrears on private investment. The authors argue that an increase in government domestic arrears can reduce private sector investment owing to the competition for credit.
Design/methodology/approach
The prediction is empirically tested using data for 33 Sub-Saharan Africa (SSA) countries for the period 2007–2018 using a panel general methods of moment estimation technique. This is also complemented with impulse responses derived from the standard vector autoregressive model.
Findings
The results show that an increase in government domestic arrears adversely affects private investment in SSA and most subregional communities within SSA. It also revealed that private investment negatively responds to shocks in government domestic arrears.
Originality/value
This is the first study that attempts to investigate the effect of government domestic borrowing arrears on private investment. It seeks to serve as a guide to governments in their domestic borrowing decisions to ensure timely servicing.
... He obtained a negative relationship between interest rates and private investment. The neoclassical theory explains that private investment is negatively related to the real rate of interest, Yaw Asante (2000), quotes Galbis (1979) who states that private investment is positively related to the real rate of interest .The logic for this is, an increase in interest rates increases the volume of financial savings through financial intermediaries. This will in turn raise investible funds, a phenomenon that McKinnon (1973) named the "conduit effect". ...
The main objective of this study was to analyze the role played by interest rates in determining private investment in Zimbabwe. Knowledge of the effect of interest rates on private investment helps policy makers in coming up with appropriate fiscal and monetary policies. Time series data was used for the period 1980 to 2015. More so the Ordinary Least squares (OLS) method was used. Interest rates were found to be significant in determining the level of private investment in Zimbabwe over the study period. Other variables found significant in determining private investment over the study period were GDP and FDI. Interest rates and FDI both had expected signs and were all together significant at 1% level of significance. GDP had an unexpected negative sign and was also significant at 5% level of significance. For the nation of Zimbabwe to increase the level of private investment it should implement policies that reduce the interest and reduce the crowding out effect. Also favourable private and foreign partnerships should be encouraged.
... In another research, Bakare (2011) suggested that political crises may have created a climate hostile to private investment in Nigeria, in a study or analysis of the determinants in Nigeria using a time series data and on error correction model. Asante (2000) studied the determinants of private investment behaviour in Ghana from 1970-1992. The results showed that the growth rate of real credit to the private sector has a positive and statistically significant effect on private investment created a climate hostile to private investment. ...
This paper empirically investigates the determinants of private savings and private investment in Nigeria.The study also examines the direction of causality between savings and investments and tests the existence of structural breaks on savings and investment process in Nigeria. The study adopted linear regression models, granger causality model, and dummy regression models to address the objectives. The empirical results show that real disposable income and real interest rate are positively related to private savings in Nigeria. Also previous savings and inflation are found to be significant determinants of private savings in Nigeria. Furthermore, previous investment, interest rate and real exchange rate are found to be significant determinants of investment in Nigeria. The granger causality model shows evidence of independent causality between private savings and private investment in Nigeria. The dummy regression models show evidence of no significant structural break in private savings and investment within the pre-SAP and post-SAP periods under review (1970-2010). Given the prevalence of low saving rate and invariably low investment rate in Nigeria, we recommend that there is the need for government and monetary authorities to adopt serious income and monetary policy measures that will enhance savings and investment in Nigeria. This can also be achieved by enhancing people's real income through provision of jobs, savings attitude reorientation and making the economic environment more investment friendly.
... The report pointed out however that, efficiency levels of the investments are low. Asante (2012) found the growth rate of GDP to have the wrong sign (negative) in an investment equation and concluded that the GDP growth rate variable has the least influence on private investment. ...
Empirical results of the effect of international remittances on economic growth of individual countries and groups of countries have yielded mixed results. This study is intended to add to the debate on the impact of international remittances on the aggregate output of individual countries, Ghana in this case. An earlier panel data study found a negative impact of remittance on real GDP and prompted further research on the topic for individual countries and groups of countries. The papers which followed and were able to correct for endogeneity in the models, found a mild positive impact of private unrequited remittances on economic growth. The impact of remittances on economic growth of a particular country depends on the proportion of remittances invested and consumed, the level of financial development and the quality of institutions in the country. This study used time series data from 1990 to 2014 on Ghana and found a positive impact of remittances on the growth rate of real GDP. Engel and Granger Cointegration test and Error Correction Models were used. Remittances were found to be pro-cyclical. Granger causality tests which corrects for the errors of cointegrated variables found causality running from financial development to remittances and from remittances to real GDP. Remittances have been found in other studies to benefit the Ghanaian economy by reducing poverty and sustaining the current account. This study shows a positive impact of remittances on aggregate output. Thus requiring policies to increase the flows and encourage their investment. Keywords: International Remittances, Economic Growth, Ghana, Financial Development.
... There are a wide array of concepts and approaches in the literature of investment that identify determinants of investment at the local national and global level. For instance, according to the 1998 World Investment Report, the policy framework for FDI includes: economic, political and social stability, rules regulating entry and operation of FDI, standard of treatment of foreign affiliates, policies on functioning and structure of the markets, international agreement on FDI, privatization policy, trade policy and tax policy (Yaw Asante, 2000). Business facilitation refers to the ease with which business can be conducted in the host country. ...
Modern states and societies development can hardly be achieved without an appropriate policy and action that delivers greater economic outcomes. To this end, all states starting from the ancient times to the modern era practiced economic policies that rely greatly on the accumulation of wealth through different means of the production process that leads to extraction hence accumulation of wealth based on which the state builds and maintains its internal as well as external sovereignty. It was in yesterday this motive for achieving unlimited growth and accumulation of wealth that drives the first British East Indian company to open its first overseas production plant in India in the 18th century.Today the multiple economic social and technological imperative of investment and that of foreign direct investment have become clear. Foreign direct investment is the most important engine based on which sates economy gain income in terms of National Gross Domestic Production, foreign exchange earnings and employment opportunity as well as technological and capital transfer. To this end, countries compete for attracting capitals to flow to their economy in the form of investment. This has greatly benefited countries of South East Asia in the last couple of decades. Africa, though not benefited as much as the what the Asian tigers and other eastern economies gained from foreign direct investment, many of African states are striving to use the advantage of investment in their national endeavor to achieve economic and socio-political development .Yet, the pattern of the distribution of this gain from the foreign direct investment is limited in its scope and not enabled states to benefiting the different sections of their population equally.This problem of uneven distributions of gains from economic development has been common problem in many of the emerging economies.Ethiopia is not peculiar.Despite the progress made in atracting more investors to the national economy,the distribution of these has been uneven.Most of the FDI gains are concentrated in few clusters in the major regions of the country. One of the least benefited livelihhod and economic areas has been the pastoralist roaming areas. Comparatively speaking,thus far,the Somali regional state gained little or no foreign direct investment since the new EPRDF government came into power 30 years ago .This has been despite the region has a huge potential for making gain from FDI given that the required attention and intervention is made.This article makes a description of the investment potentials in Somali regional state baed on the political economy framework. The review concludes that The review fininds out that the region has a huge potential for investment given the right attention by both policymakers and investors.
... It argues that the increase in investment rate is demonstrated by the difference between the existing and the desired capital stock. This model shows that investment is positively related to marginal product of capital and negatively related to real interest rate that raises the cost of capital (Chirinko, 1993;Asante, 2000;Lugo, 2008). Other literature, however, establishes a positive relation between real interest rate and investment volume and quality since higher interest rate encourages both total and financial savings and, therefore, investment. ...
... En conclusion, les variables qui peuvent affecter l'ampleur de l'investissement domestique L'investissement passé : désigné par l'investissement domestique retardé d'une année, cette variable est prise comme proxy du climat d'investissement dans un pays. Elle est approximée par la formation brute de capital (Fofack et Ndikumana, 2009 ;Ndiaye, 2011) On estime que l'investissement passé a un effet positif sur l'investissement actuel (Asante, 2000et Ndikumana et Boyce, 2003. La variable investissement est extraite de la base de la Banque ...
L'un des principaux défis auxquels sont confrontés les pays en développement est de stimuler l'investissement afin atteindre des taux de croissance plus élevés. D'autre part, le phénomène de la fuite des capitaux, qui est défini comme sorties de capitaux non déclarés par les résidents d'un pays, entraîne des conséquences négatives sur les économies de nombreux pays en développement. Dans ce travail, nous étudions les effets potentiellement dévastateurs de la fuite des capitaux sur l'investissement en présence des politiques de libéralisation financière. Pour ce faire, d'abord, nous mesurons l'ampleur de la fuite des capitaux pour 19 pays émergents durant la période 1984-2010 en se basant sur la méthode résiduelle de la Banque Mondiale. Ensuite, nous utilisons la méthodologie de panel dynamique qui permet de contrôler pour les effets spécifiques à chaque pays ainsi que de tenir en compte de l'endogénéité potentielle des variables explicatives. Les résultats suggèrent que la fuite des capitaux a un effet négatif et statistiquement significatif sur l'investissement domestique total. Ce résultat reste robuste après la désagrégation de l'échantillon total en trois groupes : pays d'Amérique latine, pays d'Asie et pays de la région MENA. Les résultats révèlent également que la fuite des capitaux réduit considérablement l'investissement privé alors que son effet sur l'investissement public est non significatif. Par conséquent, l'impact négatif de la fuite des capitaux sur l'investissement intérieur total s'opère plus à travers le canal de l'investissement privé que celui de l'investissement public. Si les pays en développement peuvent rapatrier les capitaux et les empêcher de fuir par la mise en oeuvre de politiques macroéconomiques adéquates, ces fonds pourraient être utilisés pour améliorer l'investissement intérieur.
... The implication of this study is that credit to private sector has a positive significant impact on private investment in Kenya. Asante (2000) explored the determinants of private investment in Ghana using distributed lagged model and finds that, the most important determinants were the trade regime, real credit to the private sector and political and economic instabilities. The factors which seemingly strengthened private investment were public investment, credit to private sector, public debt, real exchange rates, and real interest rates and lagged private investment. ...
Theories have proved that a significant critical factor influencing private sector investment is credit to the private sector which has more significant effect on economic activities than credit to the public sector. This study therefore examines the extent to which private sector credit impacts on private sector investment in Nigeria. The ARDL model was engaged in data analysis. From the analysis, the following results were established, that private sector credit has positive and significant impact on private sector investment in the short run, but in the long run, private sector credit has positive and insignificant impact on private sector investment in Nigeria. Empirically, 1 percent increase in private sector credit in the short run leads to 0.77 percent increase in private sector investment. The study recommends that, monetary authorities pursue policies aimed at increasing availability of private sector credit. Such policies include reducing real interest rate by 1 percent so as to increase private sector investment by 0.01% in the short run. Furthermore, the study recommends that public expenditure should be channeled to addressing the poor state of physical infrastructure, particularly road networks, electricity and water supply.
... Methodology. Following the ‡exible accelerator model (Asante, 2000;Agidew, 2014), we derive an investment function of the form: ...
Given the prevailing view that public borrowing could be a springboard for
boosting domestic investment levels in any economy, leveraging on multiple sources of finance to meet development financing needs is critical. In sub-Saharan Africa, however,
the bleak investment landscape in the face of the emerging public debt spiral is worrying.
Therefore, the study examines the effect of public debt on domestic investment in 33 SSA
countries using Panel - Corrected Standard Error Estimation (PCSE) and one - step System GMM dynamic panel estimations over the period of 2000-2017. Empirical findings reveal that both debt (% of GDP) and external debt stocks (% of GNI) have a negative effect on domestic investment, implying that rising public debt tends to have adverse influence on investment levels across countries in SSA. Thus, the study posits that ensuring sustainable funding of developmental projects through the adoption of recent financial instruments that embed more resilience into the structure of public debt is central. Also, policy actors should introduce measures that could stimulate public investment efficiency, with borrowed funds effectively channeled towards investment-inducing projects such as infrastructure development for improved economic performance.
... In addition, the study reveals that financial intermediation promotes growth through productivity rather than capital accumulation. In Ghana, several studies on the link between the financial sector and the real sector indicate that financial development promotes private investment (Asante, 2000 ;Asare, 2013;Frimpong and Marbuah (2010); Eshun et al. 2014)). Onodugo, Kalu & Anowor (2013) achieve the same results in the case of Nigeria. ...
... The report pointed out however that, efficiency levels of the investments are low. Asante (2012) found the growth rate of GDP to have the wrong sign (negative) in an investment equation and concluded that the GDP growth rate variable has the least influence on private investment. ...
Empirical results of the effect of international remittances on economic growth of individual countries and groups of countries have yielded mixed results. This study is intended to add to the debate on the impact of international remittances on the aggregate output of individual countries, Ghana in this case. An earlier panel data study found a negative impact of remittance on real GDP and prompted further research on the topic for individual countries and groups of countries. The papers which followed and were able to correct for endogeneity in the models, found a mild positive impact of private unrequited remittances on economic growth. The impact of remittances on economic growth of a particular country depends on the proportion of remittances invested and consumed, the level of financial development and the quality of institutions in the country. This study used time series data from 1990 to 2014 on Ghana and found a positive impact of remittances on the growth rate of real GDP. Engel and Granger Cointegration test and Error Correction Models were used. Remittances were found to be pro-cyclical. Granger causality tests which corrects for the errors of cointegrated variables found causality running from financial development to remittances and from remittances to real GDP. Remittances have been found in other studies to benefit the Ghanaian economy by reducing poverty and sustaining the current account. This study shows a positive impact of remittances on aggregate output. Thus requiring policies to increase the flows and encourage their investment.
Keywords: International Remittances, Economic Growth, Ghana, Financial Development.
The study examines the effect of external debt on domestic investment in Somalia from 1989 to 2019. Data were collected from secondary sources and were analysed using fully modified ordinary least square and also used the Augmented Dickey−Fuller (ADF) for the unit root and the Johansen cointegration test to determine the long-run relationship between the variables. The results of the regression model show that the coefficient of external debt remains consistently positive and also statistical significant, meaning that there is a positive relationship between external debt and inflation to the domestic investment while exchange rate there is negative relationship domestic investment in Somalia. Meaning the increase of external debt and inflation will lead the increase of the domestic investment in the country. found the exchange rate has significant negative impact on domestic investment. The result of cointegration shows there is at least one cointegrating vector between the variables. Policy makers should promote policies that can ensure that borrowed funds are spending on productive activities.
This study empirically examines the effects of external debt servicing on capital formation in Ghana. Using data from 1980 to 2019, the study estimates the Autoregressive Distributed Lag (ARDL) model and finds that the effect of external debt servicing is negative both in the long and the short run due to the tax disincentive effect. This suggests that as a result of the potentially high debt servicing due to the high debt stock, any future investment may attract high marginal tax rates and would tend to reduce investment in the economy. The result further shows that external debt servicing affects private capital formation more than public capital formation. However, the effect of the external debt stock on private investment is negative in the long run but positive in the short run confirming the direct effect of the debt hypothesis' existence in Ghana suggesting that external debt discourages a long-term investment which is critical for economic growth. Additionally, there exists complementarity between public and private investments indicating that some public investments attract private ones into the country. Therefore, external debt service payment crowds out private investment through excessive interest charges, so government should determine a threshold of borrowing in order to minimize the high debt servicing. JEL: E22, E31, E62, F31, G31, H63, P24
In Ethiopia, there has been various economic and political reforms for the last ten years which can motivate private investors. Even though, some improvements have been registered as a result of such reforms, the performance of private sectors became low. This study conducted to evaluate the performances of private investment in regional distribution, sector contribution, and ownership structure and employment creation. The result shows that Most of private investment projects are concentrated around Addis Ababa, with manufacturing and service sectors. In Ethiopia, foreign private projects are capital incentive while Domestic private projects have higher share in employment creation. Emerging regions in the country exhibited small number of private projects as compared to other regions. Identified variables for the study includes private investment, inflation rate, abroad money supply, GDP per capital, interest rate, exchange rate, public investment, and external debt. To enhance the analysis, Econometrics model with OLS using multiple regression was applied. The result shows that GDP per-capital, and external debt have significant positive long run effect on private investment, while broad money supply and average exchange rate have negative long run effect. Broad money supply, GDP per-capital, and external debt have significant short run effect.
This study examines and analyses the determinants of private sector growth in Nigeria. The dependent variable is Private Sector Growth (PSG) and the independent variables are Real Gross Domestic Product (RGDP), Interest Rate (INTR), Per Capita Income (PCI), Inflation Rate (INFR), Exchange Rate (EXR), Broad Money Supply (BMS). The data for the study were sourced from CBN Statistical Bulletin, 2019 / 2020 edition from 1981 to 2020. The study employed Cointegration and Error Correction Mechanism as the main analytical tool. It also applied the unit root test and results showed that the data were integrated at order one while the long-run relationship among the variables was confirmed using the Johansen (1988) cointegration test. Estimates of the Error Correction Model result showed that Interest Rate (INTR), Exchange Rate (EXR) have a negative significant relationship with the determinants of private sector growth in Nigeria, Broad Money Supply (BMS) has a negative significant relationship with the determinants of private sector growth in Nigeria. In conclusion from the above results, it was observed that the determinants of the private sector growth in Nigeria contributed to the improvement and enhancement of Interest Rate, Exchange Rate and Broad money Supply in Nigeria. It was recommended that interest rate, exchange rate and broad money supply have a significant positive and negative relationship between interest rate, exchange rate and broad money supply with the determinants of private sector growth in Nigeria base on this result: it is recommended that continued attraction of real sector development from private investors would boost economic growth in Nigeria. And also to develop human capital for Nigeria would be to put in place policies and infrastructures that could encourage private investment inflows.
The topic of the study was chosen based on the importance of investment in general and private investment in particular, and the research started from the hypothesis that there are some macroeconomic variables that have a significant impact on private investment in Iraq, which caused a decrease in the role of the private sector in the economy, For the purpose of proving the hypothesis, the research was divided into two topics, as the first section dealt with the theoretical framework of private investment and its relationship to some economic variables such as inflation, unemployment and gross domestic product, while the second study dealt with the standard aspect to explain the effect of these variables on private investment, and the research reached several conclusions, the most important of which is the proof of the significance of the regression coefficient For the independent variables on private investment through (t) test, as (t) calculated is greater than the tabular for all variables, and the (F) test indicates the statistical significance in the model that the value of (F) calculated is greater than the tabular. As for the recommendations, the most important one is to give the private sector more support, attention and care by expediting the adoption and implementation of legislation and laws that increase the participation of this sector in the economy and make investments.
The public authorities, in agreement with the private sector, are looking for the optimal solution that would enable the national economy to be more competitive in order to emerge by 2035. Indeed, one of the solutions lies in the country's ability to make private investment the growth factor. It is with this in mind that the purpose of this work is to analyze the effects of private investment on economic growth in Cameroon according to the nature of the transmission channel. To achieve this, we presented the concepts of the study as well as the literature on the relationship between them. Then we proceeded to empirical verification of the relationship between private investment and economic growth. A multiple linear regression model allowed us to relate these two concepts. Using the ordinary least squares (OLS) method in time series over the period 1990-2016, it appears that private investment has a positive influence on economic growth in Cameroon through the direct and indirect transmission channel.
Bu çalışmanın amacı, McKinnon’ın tamamlayıcılık hipotezine yönelik literatürü araştırmak ve Türkiye ekonomisi’nin 1985-2003 örnek dönemi için hipotezi test etmektir. Hipotezi Türkiye ekonomisi üzerinde test etmek için eşbütünleşme ve vektör hata düzeltme teknikleri kullanılmaktadır. McKinnon tarafından ileri sürülen tamamlayıcılık hipotezi, gelişmekte olan ülkelerde, para ile fiziki sermaye (yatırım) arasındaki ilişkiye Neo-klasik ve Keynesyen teorilerden farklı bir bakış açısı getirmektedir. Hipoteze göre, bölünmüş bir ekonomide para ve yatırım arasında güçlü ve pozitif bir ilişki beklenmektedir. Yüksek reel faiz oranlarına neden olan finansal liberalizasyon politikası, para talebi ve yatırımları teşvik etmektedir. Çalışma, McKinnon’ın tamamlayıcılık hipotezinin Türkiye ekonomisi için desteklenmediğini ortaya koymaktadır. Ampirik bulgularımız, literatürle uyumludur.
This study investigates fiscal policy impact on financial sector development in Sierra Leone between 1980 and 2015. The objective of the study is to establish the long run relationship between fiscal policy variable and financial sector development. The study used a quantitative approach; the model was formulated with Private sector credit used as a proxy variable for financial sector development. This was regressed against gross domestic product, money supply, real interest rates, inflation and total tax revenue. The study used error correction model to estimate both long term and short term effects of the explanatory variables on the dependent variables in the empirical functions. The unit root tests shows that variables in the equations were I(1) variables, meaning they were stationed at first difference using both the Augmented Dickey Fuller and Philip Pheron tests. The Johansson co integration tests concludes that there are more than one co-integrating factors in each empirical function, therefore a long run relationship exists between private sector credit and its explanatory variables. To validate the quality of the data for the use of vector auto regression, all of the tests were conducted including; lag length criteria test, serial correlation test, normality test, stability test. The result from the private sector credit and fiscal and non-fiscal variables in Sierra Leone contradicts most of the theoretical and empirical literature on financial sector development. The conclusion is that even when we are expecting a negative relationship between private sector credit and money supply, real interest rates, total tax revenue and inflation, the results all came out positively and significantly in long run financial economic analysis. This study shows that the private sector is willing to borrow regardless of the interest rate in the economy and the level of taxation. Basically the risk appetite in the private sector shows the level of desperation of private institution to access short to medium term capital. This might explain the reason for the high non-performing loans (NPL) in the economy of Sierra Leone.
Keywords: Fiscal Policy, Sierra Leone, Time Series, financial policies
Article Review Status: Published
Pages: 1-23 (Download PDF)
Borçlanma eşiği dış borç stoku/GSMH oranındaki artışın ekonomik büyümeye zarar vermeye başladığı dönüm noktasını ifade etmektedir. Diğer bir deyişle kişi başına düşen GSMH ile dış borç stoku arasında ters U şeklinde bir ilişki söz konusu olabilmektedir. Ülkeler düşük dış borç oranlarında borçlanmalarını arttırarak ekonomik gelişime katkı
sağlayabilmektedirler. Bu durum belirli bir noktaya kadar sürmektedir. Eşik değerinden sonra ise dış borç yükü ekonomiye zarar vermeye başlamakta, bu nedenle ekonomik gelişim ve dış borç/GSMH oranı arasında negatif bir ilişki söz konusu olmaktadır. Ters U-şeklindeki bu durum teoride borç Laffer eğrisi olarak nitelendirilmektedir. Bu çalışma Türkiye’de borç Laffer eğrisinin geçerliliğini analiz etmektedir.
Dış borç düzeyinin eşik değerden yüksek olması, yatırımları caydırma, verimliliği düşürme gibi nedenlerle ekonomik büyümeyi olumsuz etkilemektedir. Diğer yandan ülkelerdeki politik, ekonomik ve mali yapıya göre söz konusu eşik değerin boyutu değişmekte ve ülkeye özgü bir hal almaktadır. Bu nedenle genel geçer bir eşik değer bulunmamaktadır. Bu durum dış borç-ekonomik büyüme ilişkisinde dış borçların ekonomik büyümeyi negatif etkilemeye başladığı eşik değerin ülke özelinde belirlenmesini gerekli kılmaktadır. Bu açıdan borç Laffer eğrisi eşik değerinin Türkiye için belirlenmesi, hangi düzeyde borçlanmanın Türkiye ekonomisine zarar vereceği hakkında önemli ipuçları içermektedir. Bu ipuçlarına göre ise politika yapıcılar ülke borçlanma düzeyini etkin noktada tutabileceklerdir.
Kamu dış borcunun yatırımlar ve ekonomik büyüme üzerindeki olumlu ve olumsuz etkilerini tanımlayan çeşitli hipotezler mevcuttur. Bu bağlamda, ‘borç fazlası’ ve ‘dışlama’ hipotezleri sırasıyla, kamu dış borçlanmasının ekonomik büyümeyi ve yatırımları negatif yönde etkileyeceğini belirtmektedir. Bu çalışmada Türkiye için bahsi geçen iki hipotezin geçerliliği 1987-2017 döneminde bileşik eş-bütünleşme testi, tam modifiye edilmiş ve dinamik en küçük kareler tahmincileri ile test edilmiştir. Çalışmanın bulguları iç borcun hem yatırımları hem de büyümeyi, dış borcun ise sadece yatırımları olumsuz yönde etkilediğini göstermektedir. Ancak, kamu dış borç servisi ile özel sektör yatırımları arasında anlamlı bir ilişki elde edilememiştir. Bu nedenle dışlama hipotezi geçerli değildir. Benzer şekilde Türkiye’de ekonomik büyüme ve dış borç stoku arasında bir ilişki olmadığı için borç fazlası hipotezi de geçersizdir. Çalışmanın sonuçlarında bu durumun sebepleri tartışılmıştır.
This article examines the role of financial development and trade openness in promoting private investment in India. We use data (1960– 2013) from the World Development Indicators database. After checking the time series properties of the data, we employ auto-regressive distributed lag (ARDL) estimation technique to investigate the impact of the concurrent existence of financial development and trade openness on private investment and whether the effect of financial development is dependent on the level of openness. The results show that, independently, financial development and trade openness have significant positive effects on India’s private sector investment, in both the long run and the short run. However, the effect of the interaction between financial development and trade openness on private investment is significantly negative, suggesting that the effect of financial development on private investment depends on the level of openness. Therefore, we conclude that care should be taken in the design of policies that allow for the coexistence of financial development and trade openness if India aims at promoting private sector capital formation for job creation.
JEL Classification: E22, E44, F10, F60
Managing People in Small and Medium Enterprises in Turbulent Contexts explores a range of human resource management (HRM) issues specific to small and medium-sized enterprises (SMEs). Based on a series of research studies and secondary sources of data, the book's primary aim is to contextualise HRM issues in SMEs operating in a variety of national economic contexts that are (or have recently experienced) a turbulent situation. SMEs are the backbone of these economies. It is therefore critical that we study HR practices and concepts within such enterprises. The book covers HR practices in SMEs, such as recruitment and selection, training and development, performance evaluation and employee relations, by focusing on three types of turbulent economies: emerging market economies in Asia, the Pacific, Africa and Latin America; transition economies of Central and Eastern Europe; and crisis contexts in Southern Europe. Managing People in Small and Medium Enterprises in Turbulent Contexts is a useful resource for organisations, practitioners, academics and scholars in the fields of HRM, employee engagement, small and medium business management and other related disciplines.
The purpose of this study was to analysis the effect of investment on poverty in Indonesia using two analyzes : long-term equilibrium analysis with cointegration equation and short-term analysis with linear regression method ECM (Error Correction Model) period 1990-2016. Results show that domestic investment and foreign investment affect on poverty.
This study sought to investigate the link between private investment decisions and various governance
institutions. This link is empirically tested for a panel of 4 East Africa countries by estimating a random effect
model for the period 1996-2015. While the literature has placed special emphasis on the role of corruption on
private investments, we explore a wider range of institutional aspects. Estimations results show that government effectiveness, regulatory quality, control of corruption, and rule of law influence the level of private investments.
This article reviews theories of investment behavior and examines empirical studies of investment in developing countries. The emphasis is on understanding the interactions among macroeconomic policies, structural adjustment and private investment. The article deals with the effect of exchange rate policy on investment, the relationship between public and private investment, the importance of market imperfections and financial constraints on capital formation, and the effect of economic instability on irreversible investment decisions. Copyright 1992 by Oxford University Press.
One of the most dramatic events in Nigeria over the past decade was the devaluation of the Nigerian naira with the adoption of a structural adjustment programme (SAP) in 1986. A cardinal objective of the SAP was the restructuring of the production base of the economy with a positive bias for the production of agricultural exports. The foreign exchange reforms that facilitated a cumulative depreciation of the effective exchange rate were expected to increase the domestic prices of agricultural exports and therefore boost domestic production.
The behavior of private investment in developing countries has obvious implications, both for long-term development and for the design of shorter-term stabilization programs. What determines the rate of private investment and how this rate responds to changes in government policies are questions of considerable importance to policymakers and academics alike. For example, would a tightening of monetary policy result in a fall in real private capital formation or in no change? Similarly, would an increase in government capital expenditures have a negative or positive effect on private investment? Clearly, any meaningful analysis of growth in developing countries must take into account questions of this nature. Although private investment behavior in industrial countries has been studied extensively, there is as yet little systematic evidence on this subject for developing countries. In this paper a model of private investment in developing countries is formulated to analyze the empirical relations between private investment and some of its main determinants. The exercise focuses on the influences that variations in bank credit and in government capital formation have on the private sector's investment decisions. The concentration on these two factors allows an explicit treatment of the issue of real and financial "crowding out," a subject over which there is considerable controversy. Furthermore, the analysis attempts to make an empirical distinction between public investment related to the development of infrastructure, which is likely to be complementary with private investment, and other types of government investment, which may substitute for private capital formation. The model is estimated for 24 developing countries by using a data set for private and public investment that was specially constructed for this exercise. Data on the public sector--properly defined to include the general government, autonomous institutions, and nonfinancial state enterprises--are not readily available and must be assembled from different sources. The empirical results indicate that it is possible to identify a fairly well-behaved private investment function for developing countries. The principal policy-related conclusions of the study are twofold. First, changes in bank credit to the private sector have a significant effect on private investment, such that a reduced flow of real credit to the private sector, for whatever reason, causes real private investment to decline. Second, an increase in the infrastructural component of government capital formation (represented by various empirical proxies) raises private investment, but similar increases in other kinds of public investment appear to result in some crowding out. /// Le comportement de l'investissement privé dans les pays en développement a, de toute évidence, des répercussions tant sur le développement à long terme que sur l'élaboration des programmes de stabilisation à plus court terme. Quels sont les facteurs déterminant le taux de l'investissement privé et comment ce taux réagit-il aux modifications de la politique appliquée par les pouvoirs publics? Ce sont là des questions qui revêtent une importance considérable tant pour les responsables de la politique économique que pour les théoriciens. Par exemple, un resserrement de la politique monétaire se traduira-t-il par une baisse de la formation de capital dans le secteur privé, en valeur réelle, ou n'aura-t-il aucun effet sur cette variable? De même, une augmentation des dépenses d'investissement de l'Etat aura-t-elle un effet négatif ou positif sur l'investissement privé? Il est clair que, pour être valable, toute analyse de la croissance dans les pays en développement doit tenir compte des questions de cette nature. S'il est vrai que le comportement de l'investissement privé dans les pays industrialisés a fait l'objet d'études approfondies, rares sont les analyses qui ont été, jusqu'à présent, systématiquement consacrées à ce sujet dans le cas des pays en développement. Dans ce document, un modèle de l'investissement privé dans les pays en développement a été construit en vue d'analyser la relation empirique existant entre l'investissement privé et certains de ses principaux déterminants. L'analyse est principalement consacrée à l'influence que les variations du crédit bancaire et de la formation de capital dans le secteur public exercent sur les décisions du secteur privé en matière d'investissement. Etant donné qu'elle porte principalement sur ces deux facteurs, l'analyse permet d'examiner de manière explicite le phénomène d'éviction réelle et financière, question qui est largement controversée. En outre, l'analyse cherche à établir une distinction empirique entre l'investissement public qui est lié au développement de l'infrastructure, et qui, selon toute vraisemblance, est un complément de l'investissement privé, et d'autres types d'investissement public qui peuvent se substituer à la formation de capital dans le secteur privé. Le modèle est estimé pour 24 pays en développement à partir d'une série de données relatives à l'investissement privé et public qui a été établie spécialement aux fins de cette analyse. Les données relatives au secteur public, défini de manière à inclure l'administration générale, les institutions autonomes et les entreprises d'Etat non financières, ne sont pas directement disponibles et doivent être établies au moyen de renseignements provenant de différentes sources. Selon les résultats empiriques, il est possible d'identifier, pour les pays en développement, une fonction de l'investissement privé possédant d'assez bonnes propriétés. Les conclusions principales de l'étude, sur le plan de la politique économique, sont les suivantes: en premier lieu, les variations du crédit bancaire au secteur privé ont sur l'investissement privé une incidence significative, telle que, si le montant du crédit accordé au secteur privé diminue, en valeur réelle, pour n'importe quelle raison, l'investissement privé aura, lui-aussi, tendance à diminuer en valeur réelle. En deuxième lieu, une augmentation de la composante infrastructure de la formation de capital dans le secteur public (représentée par différentes variables empiriques de remplacement) aura pour effet d'accroître l'investissement privé; en revanche, une augmentation analogue d'autres types d'investissement public semble avoir, dans une certaine mesure, un effet d'éviction sur les investissements du secteur privé. /// El comportamiento de la inversión privada en los paÃses en desarrollo tiene repercusiones obvias tanto sobre el proceso de desarrollo a largo plazo como para la formulación de programas de estabilización a más corto plazo. Cuáles son los factores que determinan el coeficiente de inversión privada y de qué manera reacciona éste ante las variaciones de las polÃticas nacionales son interrogantes que revisten una importancia considerable tanto para las autoridades como para los teóricos. Por ejemplo, ¿ocasionarÃa una polÃtica monetaria más restrictiva un descenso en la formación real de capital privado? Igualmente, ¿un aumento del gasto de capital del sector público tendrÃa una repercusión negativa o positiva en la inversión privada? Evidentemente, en todo análisis del crecimiento económico de los paÃses en desarrollo se deben tener en cuenta interrogantes de esta naturaleza. Si bien el comportamiento de la inversión privada en los paÃses industriales ha sido estudiado detalladamente, son muy pocos los análisis sistemáticos consagrados a este tema en el caso de los paÃses en desarrollo. En este trabajo se formula un modelo de inversión privada en los paÃses en desarrollo con el fin de analizar las relaciones empÃricas entre la inversión privada y algunos de sus principales determinantes. El análisis se concentra en la influencia sobre las decisiones del sector privado en materia de inversión de las variaciones del crédito bancario y de la formación de capital por parte del sector público. Al concentrarse en estos dos factores es posible efectuar un análisis explÃcito de la "exclusión" (crowding out) real y financiera, tema que ha suscitado grandes controversias en estos últimos tiempos. Además, mediante el análisis se trata de establecer una diferencia empÃrica entre la inversión pública destinada al desarrollo de la infraestructura, la cual en general es un complemento de la inversión privada, y otros tipos de inversión pública, los cuales pueden sustituir a la formación privada de capital. El modelo se ha estimado para 24 paÃses en desarrollo usando una serie de datos sobre inversión privada y pública preparada especialmente para los fines del presente análisis. Los datos sobre el sector público --que según esta definición incluye las administraciones públicas, las entidades autónomas y las empresas estatales no financieras-- no son fáciles de obtener y se los ha extraÃdo de diferentes fuentes. Los resultados empÃricos indican que es posible identificar una función de inversión privada bastante especÃfica para los paÃses en desarrollo. Son dos las principales conclusiones del estudio en materia de polÃtica: en primer lugar, las variaciones del crédito bancario al sector privado tienen una repercusión considerable en la inversión privada, motivo por el cual toda reducción de la corriente de crédito real al sector privado --cualquiera sea el motivo-- ocasiona una disminución de la inversión privada real. En segundo lugar, un aumento del componente infraestructural de la formación de capital público (componente representado por diferentes variables empÃricas) da lugar a un aumento de la inversión privada, mientras que aumentos similares en las otras categorÃas de inversión pública parecen traer aparejada una cierta "exclusión".
The Real Exchange rate and Ghana's Agricultural Exports
There have been close connections between economic policies in Ghana and many of the theories of development economics over the last decade and a half. Ghana's experiences are thus treated as providing a testing ground for many of the policy prescriptions that have been offered by development strategy included a 'big-push' involving a major investment effort; emphasis on import- substituting industrialization and on structural change and less dependent economy; and wide ranging state participation in the development process. The post-Nkrumah yr ar treated as illustrating the problems of effecting a transition to a more market-oriented set of policies, of the tyes that have been more extensively advocated by economists in recent yr. -after Publisher Ghana development strategy import substituting industrialization market oriented policies
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This paper discusses the following issues regarding the pace of private domestic investment, its prospects for recovery, and its role in adjustment programs of developing countries: (a) the relationship between stabilization measures affected through aggregate demand management and the need for investment recovery; (b) the complementarity or competitiveness of private and public investment; and (c) the role of capital income taxation as a tool in influencing investment incentives. It also examines the effect of the size of the fiscal deficit and alternative sources of financing the budget deficit on private investment. The key issues here are how these options affect the real interest rate, credit allocation, and the real exchange rate and how those variables in turn affect private investment. The impact of public expenditure decisions on private investment, particularly the different types of public investment choices and their impact on private investment are discussed. The paper examines the implications of tax policy for private investment decision and the effect of tax policy on private investment in the presence of capital market imperfections. It also discusses the impact of inflation in the absence of a fully indexed tax system and provides concluding thoughts.
Public enterprises (PEs) have played a dominant role in Tanzania's socio-economic development. However, there enterprises have contributed significantly to economic crises presently facing the country. Precisely, they have been a fiscal and monetary burden to the economy. The main objective of this study is to analyse and make some initial attempts in assessing the magnitude of the burden.
This paper is structured as follows : First, we outline the problem of fiscal policy and growth in Cote d'Ivoire. Second, we describe the critical economic and fiscal sequence of events in the country from 1970 to 1989. This lets us build up a comprehensive model that allows a discussion of the current fiscal policy of Cote d'Ivoire in connection with growth.
Despite its importance to economic growth and the evolution of market structure, the investment behavior of firms, industries, and countries remains poorly understood. This paper has several objectives. First, it reviews some basic models of irreversible investment to illustrate the option-like characteristics of investment opportunities, and to show how optimal investment rules can be obtained from methods of option pricing, or alternatively from dynamic programming. Second, it discusses the implication of irreversibility for the empirical analysis of investment behavior. Finally, it discusses briefly some of the implications that the irreversibility of investment may have for policy. For example, policies that stabilize prices or exchange rates may be effective ways of stimulating investment.
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