Public Infrastructure and Private Investment in the Middle East and North Africa

39 Pages Posted: 10 Aug 2005

See all articles by Pierre-Richard Agenor

Pierre-Richard Agenor

University of Manchester - School of Social Sciences

Mustapha K. Nabli

World Bank

Tarik Yousef

Georgetown University - Edmund A. Walsh School of Foreign Service (SFS)

Date Written: July 2005

Abstract

This paper examines the impact of public infrastructure on private capital formation in three countries of the Middle East and North Africa: Egypt, Jordan, and Tunisia. The first part highlights various channels through which public infrastructure may affect private investment. The second part describes our empirical framework, which is based on a VAR model that accounts for flows and (quality-adjusted) stocks of public infrastructure, private investment, as well as changes in output, private sector credit, and the real exchange rate. We propose two aggregate measures of the quality of public infrastructure and use principal components to derive a composite indicator. The impulse response analysis suggests that public infrastructure has both flow and stock effects on private investment in Egypt, but only a stock effect in Jordan and Tunisia. But these effects are small and short-lived, reflecting the unfavorable environment for private investment in our sample of countries. Reducing unproductive public capital expenditure and improving quality must be accompanied by reforms aimed at limiting the investment to infrastructure capital that crowds in the private sector. At the same time, other improvements to the environment in which domestic investment operates are crucial to stimulate growth and job creation in the region.

Suggested Citation

Agenor, Pierre-Richard and Nabli, Mustapha K. and Yousef, Tarik, Public Infrastructure and Private Investment in the Middle East and North Africa (July 2005). World Bank Policy Research Working Paper No. 3661. Available at SSRN: https://ssrn.com/abstract=770945 or http://dx.doi.org/10.2139/ssrn.770945

Pierre-Richard Agenor (Contact Author)

University of Manchester - School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

Mustapha K. Nabli

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Tarik Yousef

Georgetown University - Edmund A. Walsh School of Foreign Service (SFS) ( email )

Washington, DC 20057
United States
202-687-0347 (Phone)
202-687-7001 (Fax)

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