Public infrastructure investment and private investment in East African community: crowding-in or crowding-out? Online publication date: Thu, 16-Dec-2021
by James Ochieng Babu; Daniel Abala; Mary Mbithi
International Journal of Sustainable Economy (IJSE), Vol. 14, No. 1, 2022
Abstract: The study investigates the link between public infrastructure investment and private investment for five East African community partner states using data for the period 1990-2019. Pooled mean group estimator was employed to capture short- and long-run dynamics. The results indicate that in the short-run, public infrastructure investment crowds-out private investment, however in the long-run, there is crowding-in effect. The findings also confirm the accelerator theory of investment, that is, a positive relationship between private investment and real income. We perform a sensitivity analysis by re-estimating the model using a shorter sub-sample, in the pre-Global Financial Crisis period (1990-2006). Our results are generally robust to this specification. Therefore, to boost private investment in East African community, it is necessary to channel additional resources towards infrastructure development. A stable macroeconomic environment is also a key for private sector investment in the region.
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