Specification of Investment Functions in Sub-Saharan Africa

39 Pages Posted: 20 Apr 2016

See all articles by Nihal Bayraktar

Nihal Bayraktar

Pennsylvania State University - School of Business Administration; World Bank

Hippolyte Fofack

World Bank

Date Written: March 1, 2007

Abstract

It is a well-known fact that one of the most important determinants of growth is private investment. But in the developing country context of widespread poverty, the effects of initial conditions on the process of capital accumulation have seldom been investigated. This paper highlights heterogeneity in the process of capital accumulation across different countries in Sub-Saharan Africa, and derives a formal specification of investment functions in the primary, industry, and service sectors in the region using a variation of the combined Tobin's Q Theory and the neoclassical models of investment. The results highlight a more rapid accumulation of capital in the relatively high income subpanel and a widening public-private capital accumulation gap. A functional specification points to the significance of aggregate profitability shocks, the financing cost of investment, and public capital stock in estimating the growth rate of private capital accumulation. These results are supported empirically, as highlighted by the relatively small absolute deviation between actual and predicted value distributions.

Keywords: Investment and Investment Climate, Economic Theory & Research, Trade and Regional Integration, Non Bank Financial Institutions, Economic Growth

JEL Classification: E22, O11, O55

Suggested Citation

Bayraktar, Nihal and Fofack, Hippolyte, Specification of Investment Functions in Sub-Saharan Africa (March 1, 2007). World Bank Policy Research Working Paper No. 4171. Available at SSRN: https://ssrn.com/abstract=972704

Nihal Bayraktar (Contact Author)

Pennsylvania State University - School of Business Administration ( email )

777 West Harrisburg Pike
Middletown, PA 17057-4898
United States
+1 717 948 6142 (Phone)

HOME PAGE: http://www.personal.psu.edu/nxb23/

World Bank

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

Hippolyte Fofack

World Bank ( email )

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

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