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 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.

Bibliographic Details

Main Authors:	Bayraktar, Nihal, Fofack, Hippolyte
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	World Bank, Washington, DC 2007-03
Subjects:	ACCUMULATION RATE, ADVERSE EFFECT, AGGREGATE DEMAND, AGGREGATE LEVEL, AGRICULTURE, ARBITRAGE, BUDGET CONSTRAINTS, CAPITAL ACCUMULATION, CAPITAL FLOWS, CAPITAL FORMATION, CAPITAL INVESTMENT, CAPITAL MARKET, CAPITAL MARKETS, CAPITAL STOCK, CONSTANT RATE, CONSTANT RETURNS, CONSTANT RETURNS TO SCALE, COST FUNCTIONS, COST OF CAPITAL, CREDIT RATIONING, DEBT, DEBT BURDEN, DEPRECIATION, DETERMINANTS OF GROWTH, DEVELOPMENT ECONOMICS, DISTRIBUTION OF INCOME, DOMESTIC FIXED INVESTMENT, ECONOMIC GROWTH, ECONOMIC SECTORS, EXCHANGE RATE VOLATILITY, EXOGENOUS VARIABLES, EXPECTED VALUE, EXPENDITURES, EXPORTS, EXTERNAL DEBT, FINANCIAL INSTRUMENTS, FINANCIAL MARKETS, FIXED CAPITAL, FOREIGN BORROWINGS, FOREIGN RESERVES, GDP, GDP PER CAPITA, GROWTH MODELS, GROWTH PROCESS, GROWTH RATE, GROWTH RATES, GROWTH RELATIONSHIP, INCOME, INCOME DIFFERENCES, INCOME GAPS, INCOME GROUPS, INCOME LEVELS, INFLATION RATE, INTEREST RATE, INTERMEDIATE GOODS, INVENTORY, INVESTMENT BEHAVIOR, INVESTMENT DECISION, INVESTMENT DECISIONS, INVESTMENT EXPENDITURES, INVESTMENT FUNCTIONS, INVESTMENT PROJECTS, INVESTMENT RATE, INVESTMENT RATES, INVESTMENT SPENDING, LIVING STANDARDS, LOW-INCOME COUNTRIES, LOW-INCOME GROUPS, M1, M2, MACROECONOMIC CONDITIONS, MACROECONOMIC SHOCKS, MACROECONOMIC STABILITY, MARKET IMPERFECTIONS, MIDDLE INCOME COUNTRIES, NEOCLASSICAL MODELS, NEOCLASSICAL THEORY, NONTRADABLE GOODS, PER CAPITA INCOME, PORTFOLIO, POSITIVE EXTERNALITIES, PRICE OF OUTPUT, PRIVATE CAPITAL, PRIVATE INVESTMENT, PRIVATE INVESTMENTS, PRIVATE INVESTORS, PRIVATE SECTOR, PRODUCTION FUNCTION, PRODUCTION PROCESS, PROFITABILITY, PUBLIC INVESTMENT, PUBLIC INVESTMENTS, PUBLIC SECTOR, REAL INTEREST RATE, REAL INTEREST RATES, RETURNS TO SCALE, RISK AVERSE, RISK AVERSION, SAVING RATE, STOCKS, STRUCTURAL REFORMS, SUB-SAHARAN AFRICA, TAX BASE, TECHNOLOGICAL CONTENT, TOTAL FACTOR PRODUCTIVITY, TRANSACTION COSTS, WORKING CAPITAL,
Online Access:	http://documents.worldbank.org/curated/en/2007/03/7459538/specification-investment-functions-sub-saharan-africa http://hdl.handle.net/10986/7254
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