The Main Determinants of Private Investments in the WAEMU Zone: The Dynamic Approach

Adama Messanh COMBEY

Abstract


Abstract

This article investigates the main determinants of private investment in the West African Economic and Monetary Union (WAEMU). After checking for unit root and co-integration, Error Correction Model is specified, and three estimators are performed: Dynamic Fixed-Effects, Mean Group, and Pooled Mean Group. Hausman tests show that the Dynamic Fixed-Effects Estimator is more efficient and consistent than others. Results suggest that, in the short-run, private investment in the WAEMU zone is determined by the aggregate demand conditions: gross domestic product and output gap, while, in the long-run, it is determined by gross domestic product, and political stability. The short-run elasticity of gross domestic product and output gap are statistically significant and average to 5.7 and 0.06, respectively. The long-run elasticity of gross domestic product and the semi-elasticity of political stability are statistically significant and average to 2.4 and -0.25, respectively. These finds imply that, to promote private investment in the WAEMU zone, there is a need among others for more proper design and implementation of aggregate demand management policies, and political framework stability.

Key words: Private investment, WAEMU, Dynamic fixed-effects estimator.

JEL: C33, E21, F15.

Keywords


Private investment; WAEMU; Dynamic fixed-effects estimator.

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DOI: http://dx.doi.org/10.1453/jepe.v3i4.1100

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