DYNAMIC PANEL DATA ANALYSIS OF THE IMPACT OF PUBLIC SECTOR INVESTMENT ON PRIVATE SECTOR INVESTMENT GROWTH IN SUB-SAHARAN AFRICA
Abstract
The present sought to analyze the impact of public sector investment on private sector investment
in Sub-Saharan Africa. The study utilized panel data from 2005-2015 across forty-five SubSaharan African economies. To estimate the results, the study employed the Two-Step System
GMM model as developed by (Arelano & Bover, 1995). In the presence of endogeneity, GMM is
one of the robust estimation techniques that produces unbiased, efficient, and consistent estimators.
For the validity of the instruments and presence of second-order serial correlation, the study used
the Difference-in-Hansen and the Arrellano-Bond specification tests, respectively. The results
from the study reflect that public sector investment negatively and significantly impacts private
sector investment in Sub-Saharan Africa. Therefore, public sector investment crowds-out private
sector investment. To account for the heterogeneous nature of countries in the region, the study
conducted a sub-sample analysis by dividing the sample into low-income countries and lowerincome and upper-middle income economies. Results from the sub-sample analysis showed that
public sector investment bore no significant effect on private sector investment in low-income
countries sample. As regards lower-income and upper-middle income economies, public sector
investment crowds-out private sector investment. To minimize the crowding-out effects of public
sector investment on private sector investment, the study recommends four policy interventions:
proliferation and mobilization of domestic resources; inclusive models of public sector investment;
strengthening of public sector financial managements systems, and regional integration of public
infrastructure development.