Specification of Investment Functions in Sub-Saharan Africa [electronic resource] / Bayraktar, Nihal
Material type: TextPublication details: Washington, D.C., The World Bank, 2007Description: 1 online resource (39 p.)Subject(s): Accumulation | Capital | Currencies and Exchange Rates | Debt Markets | Depreciation | Distribution of Income | Economic Theory and Research | Emerging Markets | Extensive | External | Finance and Financial Sector Development | Financial Literacy | Fixed Capital | Income | Investment | Investment and Investment Climate | Investment Behavior | Investment Functions | Investment Rate | Investors | Macroeconomics and Economic Growth | Private Capital | Private Investment | Private Investments | Private Sector Development | Profitability | Public Investment | Real Interest Rates | ValueAdditional physical formats: Bayraktar, Nihal.: Specification of Investment Functions in Sub-Saharan Africa.Online resources: Click here to access online Abstract: 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.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.
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