Public Investment, Private Investment and Economic Growth in Zambia
Date
2013-09-23
Authors
Chibuye, Benjamin K.
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Abstract
This study investigated the impact of public investment on private investment and real output in Zambia, utilising time series data for the period 1980-2008. A Cointergrated Vector Autoregressive Model (VAR) was employed. Based on the existence of a long run Cointergrating relationship, the short run interactions were also investigated.
Public investment has been identified as an indispensable component of a developing countries strategy to achieve sustainable long term growth and economic development. The Zambian government has in turn placed an emphasis on public investment in its development agenda.However the exact impact of public investment in the context of the Zambian economy is unknown, owing to a severe lack of research in this area. This points to a critical information
gap regarding the exact impact of public investment, warranting an empirical investigation. The study reveals that public investment has a positive and significant effect on both private investment and real output in the long run. However the effects of inefficiencies and constraints
inherent in the nature of public investment in Zambia would seem to be pervasive on the short run dynamics as well as the adjustment mechanism towards the long run. This is evident from the VECM, Granger causality and variance decomposition analyses, which all reveal a surprisingly weak causal effect of public investment on private investment and real output in the short run. These results imply that the beneficial effects of public on private investment and real
output only accrue with a substantial time lag.Thus public investment is encouraged as the government attempts to close the infrastructure gap,eliminate supply bottlenecks and provide an enabling environment for increased private
investment and economic growth. Equally critical however are renewed attempts to improve the efficiency and management of public investment, as these will ensure that its positive benefits begin to accrue in the shortest possible time. Furthermore the finding of weak exogeneity of real output reveals that increased investments in human capital through improved education and
health provision, as well as initiatives such as eliminating gender disparities and other initiatives contained in the MDG‟s may also be critical in the process of economic growth. The use of GDFI disaggregated by sector as it becomes available through the Economic Census may she more light on the sector specific impacts of public investment.
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Keywords
Investments-Zambia , Zambia-Economic Policy