Government Capital Expenditure and Private Investment in Sub-Saharan Africa: A Sensitivity Analysis

The government in the SSA area is one of the largest regions of the world spending much on socio – economic activities such as the provision of public utilities, addressing externalities and imperfect markets, coordinating private sector activities, and redistribution of resources. Still, despite this huge capital expenditure, the desired results have not been remarkable compared with East Asian countries. The study, therefore, looked into the sensitivity analysis of the relationship between government capital expenditure and private investment in sub-Saharan Africa. The data, which was used for this study, were sourced from the World Bank Indicator which spans from 1980 to 2016. The paper was basically on the regional analysis of sub-Saharan African countries. The study employed panel data analysis to explore the relationship between government capital expenditure and private investment on a regional basis in SSA. The result of the panel data revealed that there is a negative and significant relationship between capital
spending and private investment in both West African and Southern African regions. At the same time, the findings also exhibited a direct relationship between capital spending and private investment in East Africa. In the case of Central Africa, the results indicated that capital expenditure has no significant impact on private investment. Given the preceding finding, it was therefore concluded that private investment in East Africa is highly sensitive to macroeconomic reforms such as mild inflation and productive debt stock. This may be attributed to a good institutional framework and high quality of public investment. In line with these findings, governments of SSA countries should continue to raise the share of government capital spending and also channel it judiciously to public infrastructures such as electricity, water, port and ICT, education and health, and Agriculture for better improvement in the delivery of services.

The authors declare no conflict of interest.

Not applicable

The datasets used in this study are openly available at [repository link] and the source code is available on GitHub at [GitHub link].

This work did not receive any external funding.