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

Authors: James Ochieng Babu; Daniel Abala; Mary Mbithi

Addresses: School of Economics, University of Nairobi, P.O. Box 30197, 00100, Nairobi, Kenya ' School of Economics, University of Nairobi, P.O. Box 30197, 00100, Nairobi, Kenya ' School of Economics, University of Nairobi, P.O. Box 30197, 00100, Nairobi, Kenya

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.

Keywords: public infrastructure investment; crowding in; crowding out; private investment; pooled mean group; PMG; East African community; EAC.

DOI: 10.1504/IJSE.2022.119718

International Journal of Sustainable Economy, 2022 Vol.14 No.1, pp.1 - 23

Received: 14 Mar 2021
Accepted: 08 May 2021
Published online: 16 Dec 2021 *

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