Public and private investment and economic growth in Zimbabwe: An empirical test

• Authors: Makuyana Garikai , Odhiambo Nicholas M.
• Languages of publication: EN

Abstracts

EN

This study performs an examination on the impact of public and private investment on economic growth and the crowding effect of public investment on private investment in Zimbabwe from 1970 to 2014. The study utilised the newly developed autoregressive distributed lag-bounds testing approach with better small sample properties than the traditional cointegration techniques. The results show that public investment has a higher short-run growth impact, but in the long run the private investment-led growth is more important. In addition, while gross public investment crowds out private investment, infrastructural public investment has a long-run crowding in effect. A non-infrastructural public investment was also reported to have a short-run crowding out effect on private investment. The results suggest that the productivity of public and private investment in Zimbabwe can be improved by cutting back on non-infrastructural public investment to basic minimum level while stimulating the growth in infrastructural public investment.

Keywords

EN

Zimbabwe; public and private investment; crowding effect; economic growth

Discipline

• ECONOMICS: ECONOMICS

• Publisher: Prague Development Center, Czech Republic
• Journal: Business and Economic Horizons
• Year: 2017
• Volume: Volume 13
• Issue: Issue 1
• Pages: 60-76

Dates

published

2017-04-15

Contributors

author

Makuyana Garikai

• Department of Economics, University of South Africa, Pretoria, South Africa

author

Odhiambo Nicholas M.

• Department of Economics, University of South Africa, Pretoria, South Africa

References

• Aschauer, D. (1989). Is public expenditure productive? Journal of Monetary Economics, 23, 167-200.
• Kaminski, B., & Ng, F. (2011). Zimbabwe's foreign trade performance during the decade of economic turmoil. Will Exports Recover? The World Bank.
• Beddies, C. H., (1999). Investment, capital accumulation, and growth: Some evidence from the Gambia 1964-98 (IMF Working Paper, WP/99/117). International Monetary Fund.
• Bè̀dia, F. AKA. (2007). Relative effects of public and private investment on Còte d̀̀١lvoire's economic performance. Applied Econometrics and International Development, 7(1), 151-158.
• Belloc, M., & Vertova, P. (2004). How does public investment affect economic growth in HIPC? An empirical assessment (WP Number 416-Gennaio). Università degliStudi di Siena, Departimento Di Economia Politica.
• Berndt, E., & Hansson, B. (1992). Measuring the contribution of public infrastructure capital in Sweden. The Scandinavian Journal of Economics, 94, 151-168. https://doi.org/10.2307/3440255
• Blejer, M.L., & Khan, M.S. (1984). Government policy and private investment in developing countries. IMF Staff Papers, 31, 379-403.
• Coutinho, Rui., & Gallo, G. (1991). Do public and private investment stand in each other's way? (WDR Background Paper). World Bank.
• Crowder, W. & Himarios, D. (1997). Balanced growth and public capital: An empirical analysis. Applied Economics, 29(8), 1045-1053. https://doi.org/10.1080/000368497326435
• Cullison, W. (993). Public investment and economic growth. Federal Reserve Bank of Richmond Economic Quarterly, 79(4), 19-33.
• Devarajan, S., Swaroop, V., & Heng-fu Zou. (1996). The composition of public expenditure and economic growth. Journal of Monetary Economics, 37, 313-344. https://doi.org/10.1016/S0304-3932(96)90039-2
• Eduardo, C., & Christian, D. (2011). Public investment in developing countries: A blessing or a curse? Journal of Comparative Economics, 39(1), 65-81.
• Engle, R. F., & Granger, C. W. J. (1987). Cointegration and error correction: Representing, estimation and testing. Econometrica, 55, 251-276. https://doi.org/10.2307/1913236
• Erden, L., & Holcombe, R. G. (2005). The effects of public investment on private investment in developing economies. Public Finance Review, 33(5), 575-602. https://doi.org/10.1177/1091142105277627
• Evans, P., & Karras, G. (1994). Are government activities productive? Evidence from panel of U.S. states. The Review of Economics and Statistics, 76(1), 1-11. https://doi.org/10.2307/2109821
• Ghali, K. H. (1998). Public investment and private capital formation in a vector error correction model of growth. Applied Economics, 30(6), 837-844. https://doi.org/10.1080/000368498325543
• Ghura, D. (1997). Private investment and endogenous growth: Evidence from Cameroon (IMF Working Paper, WP/97/165). International Monetary Fund.
• Government of Zimbabwe. (1982). Transitional national development plan, 1982/83-1984/85. Volume 1. Harare, Government Printers.
• Government of Zimbabwe. (1991). Economic structural adjustment programme. Ministry of Finance and Economic Development. Harare, Government Printers.
• Government of Zimbabwe. (1998). Zimbabwe programme for economic and social transitional (ZIMPREST). Harare, Government Printers.
• Hague, S. T. (2013). Effect of public and private investment on economic growth in Bangladesh: An Econometric Analysis (Research Study Series No FDRS05/2013). Finance Division, Ministry of Finance - Bangladesh.
• Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59(6), 1551-1581. https://doi.org/10.2307/2938278
• Khan, M. S., & Kumar, M. S. (1997). Public and private investment and the growth process in developing countries. Oxford Bulletin of Economics and Statistics, 59(1), 69-88. https://doi.org/10.1111/1468-0084.00050
• Khan, M. S., & Reinhart, C. M. (1990). Private investment and economic growth in developing countries. World Development, January.
• Mallick, S. K. (2002). Determinants of long term growth in India: A Keynesian approach. Progress in Development Studies, 2(4), 306-324.
• Munnell, A. (1990). Why has productivity growth declined? Productivity and public investment. New England Economic Review, January/ February, 3-22.
• Nazmi, N., & Ramirez, M. D. (1997). Public and private investment and economic growth in Mexico. Contemporary Economic Policy, XV, 65-75. https://doi.org/10.1111/j.1465-7287.1997.tb00455.x
• Nyarota, S., Kavila, W., Mupunga, N., & Ngundu, T. (2015). An empirical assessment of binding contraints to Zimbabwe growth dynamics (Reserve Bank of Zimbabwe Working Paper Series N0.2). Reserve Bank of Zimbabwe.
• Odedokun, M. O. (1997). Relative effects of public versus private investment spending on economic efficiency and growth in developing countries. Applied Economics, 29(10), 1325-1336. https://doi.org/10.1080/00036849700000023
• Odhiambo, N. M. (2011). Financial intermediaries versus financial markets: A South African experience. International Business of Economics Research Journal, 10(2), 77-84. https://doi.org/10.19030/iber.v10i2.1795
• Pereira, A. (2001). Public capital formation and private investment: What Crowds in What? Public Finance Review, 29(1), 3-25.
• Pesaran, M. H., & Shin, Y. (1999). An autoregressive distributed lag modelling approach to cointegration analysis. In S. Strom, A. Holly and P. Diamond (Eds.), Econometrics and Economic Theory in the 20th Century: The Ragner Frisch Centennial Symposium. Cambridge, Cambridge University Press.
• Pesaran, M. H., Shin Y., & Smith, R. J. (2001). Bounds testing approach to the analysis of level relationship. Journal of Applied Economics, 16, 289-326. https://doi.org/10.1002/jae.616
• Privatisation Agency of Zimbabwe. (2002). Privatisation in Zimbabwe. PAZ Newsletter, Issue Number 1.
• Ramirez, M. D. (1996). Public and private investment in Mexico and Chile: An empirical test of the complementarity hypothesis. AEJ, 24(4), 301-320. https://doi.org/10.1007/BF02298433
• Ramirez, M. D., & Nazmi, N. (2003). Public investment and economic growth in Latin America: An empirical test. Review of Development Economics, 7(1), 115-126. https://doi.org/10.1111/1467-9361.00179
• Sahoo, P., Dash, R. K., & Nataraj, G. (2010). Infrastructure development and economic growth in China. (IDE Discussion Paper No. 261). Institute of Developing Economies.
• Samake, I. (2008). Investment and growth dynamics: An empirical assessment applied to Benin (IMF Working Paper Series, WP/08/120). International Monetary Fund.
• Xiaoming Xu., & Yanyang Yan. (2014). Does government investment crowd out private investment in China? Journal of Economic Policy Reform, 17(1), 1-12.
• Yang, Zou. (2006). Empirical studies on the relationship between public and private investment and GDP growth. Applied Economics, 38(1), 1259-1270.
• Zou, Y. (2003). On the relationship between public and private investment: An empirical study of Japan. Journal of Economic Policy Studies, 1, 18-29.