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The Main Determinants of Private Investments in the WAEMU Zone: The Dynamic Approach
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
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DOI: http://dx.doi.org/10.1453/jepe.v3i4.1100
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