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Public infrastructure investment and private investment in East African community: crowding-in or crowding-out?

Author

Listed:
  • James Ochieng Babu
  • Daniel Abala
  • Mary Mbithi

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.

Suggested Citation

  • James Ochieng Babu & Daniel Abala & Mary Mbithi, 2022. "Public infrastructure investment and private investment in East African community: crowding-in or crowding-out?," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 14(1), pages 1-23.
    • Handle: RePEc:ids:ijsuse:v:14:y:2022:i:1:p:1-23
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