Specification of Investment Functions in Sub-Saharan Africa
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 b...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2007/03/7459538/specification-investment-functions-sub-saharan-africa http://hdl.handle.net/10986/7254 |
| Summary: | 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. |
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