The Causal Relationship between Private and Public Investment in Zimbabwe

Abstract

The study examines the relationship between private and public investment in Zimbabwe utilizing yearly time series data for the period 1970 to 2007. Emphasis is placed on the direction of causality and the effect of the two types of investment on each other. The paper constructs empirical models for both private and public investment, based on the flexible accelerator theory. Private investment is found to be cointegrated with public investment. A cointergration approach and VEC model are employed to assess the short run relationship existing between public and private investment. The relationship between private and public investment is found to be insignificant and the direction of causality found to be unidirectional. The results support the notion that private investment precedes public investment.

Determinants of the Size of Public Expenditure in Nigeria

“…However, Ndovorwi (1997) used quarterly data, which he interpolated, but Jenkins (1998) used annual data and both studies were for Zimbabwe. Muyambiri, Chiwira, Batuo, and Chiranga (2010) investigated the relationship between public and private investment spending for Zimbabwe, using the Accelerator model and tested Pairwise Granger causality, and found that private investment granger causes public investment.…”

Private and Public Investment in Africa: A Time-Series Cross-Country Analysis

“…The empirical evidences show that in some important ways, private investments in developed economies are influenced by different factors than private investments in developing economies. Investigations made by Ahmad and Qayyum (2008), Ghura and Goodwin (2000), Oshikaya (1994), Ramirez (1994) have found that the two types of investment are positively correlated (Muyambiri et al, 2010). Faini (1994) analyzes whether there is a training effect or a substitute (crowding out) effect between public investment and private investment in Africa.…”

“…Most of these studies have used time series analysis with a few opting for panel data analysis. The flexible accelerator model was one of the models used to empirically estimate investment behavior (Muyambiri et al, 2010). The accelerator model was propounded by Clark (1917).…”