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The Determinants of Private Investment in Benin: A Panel Data Analysis

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  • Sosthène Ulrich Gnansounou
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    Investment is one of the mainsprings of economic growth. In order to analyse the factors explaining the weakness of investment by private firms in Benin, this paper used a capital demand function. This function was estimated using data from a panel of 123 firms in Benin and covering the 19972003 period. The findings showed that demand uncertainty and, more importantly, the fluctuations in the imports of manufactured goods from Nigeria have a negative effect on investment by private firms in Benin. The investment behaviour of these firms strongly hinges on the cost of capital utilization: When this cost is high, it weighs negatively on the purchase and installation of new production infrastructure. The magnitude of the effect of this cost of capital utilization and of the demand uncertainty which investment firms face depends on the nature of their activities.

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    Paper provided by African Economic Research Consortium in its series Research Papers with number RP_209.

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    Length: 40 pages
    Date of creation: Dec 2010
    Handle: RePEc:aer:rpaper:rp_209
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    1. Chirinko, Robert S, 1993. "Business Fixed Investment Spending: Modeling Strategies, Empirical Results, and Policy Implications," Journal of Economic Literature, American Economic Association, vol. 31(4), pages 1875-1911, December.
    2. Robert S. Chirinko, 1992. "Business Fixed Investment Spending: A Critical survey of Modeling Strategies, Empirical Results, and Policy Implications," Working Papers 9213, Harris School of Public Policy Studies, University of Chicago.
    3. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    4. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
    5. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, March.
    6. Carruth, Alan & Dickerson, Andrew & Henley, Andrew, 2000. " What Do We Know about Investment under Uncertainty?," Journal of Economic Surveys, Wiley Blackwell, vol. 14(2), pages 119-153, April.
    7. Bertola, Giuseppe, 1998. "Irreversible investment," Research in Economics, Elsevier, vol. 52(1), pages 3-37, March.
    8. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
    9. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
    10. Jean-Baptiste Herbet, 2001. "Peut-on expliquer l'investissement à partir de ses déterminants traditionnels au cours de la décennie 90 ?," Économie et Statistique, Programme National Persée, vol. 341(1), pages 85-106.
    11. Abel, Andrew B. & Eberly, Janice C., 1997. "An exact solution for the investment and value of a firm facing uncertainty, adjustment costs, and irreversibility," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 831-852, May.
    12. Catherine Pattillo, 1998. "Investment, Uncertainty, and Irreversibility in Ghana," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 522-553, September.
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