THE EFFECT OF SECTORIAL PUBLIC INVESTMENT EXPENDITURE ON PRIVATE INVESTMENT IN NIGERIA: AN ERROR CORRECTION ANALYSIS
Journal Title: European Journal of Business and Social Sciences - Year 2015, Vol 4, Issue 4
Abstract
The literature on the relationship between public and private investment seems unclear on whether there exists a complementarity or crowding out effect. This paper however examined the crowding in or crowding out effects of the composition of public investment on private investment in Nigeria. A neoclassical investment model within an error correction framework was employed to understand the dynamics of the relationships between aggregate and sectoral central government investment expenditure and private sector investment spending. The empirical results from the analysis reveal that central government investment in defence, health and transportation and communications crowd in private investment in the long run. The crowding in effect of public investment in transportation and communications lend support to infrastructural hypothesis in the long-run. The effects of aggregate central government investment and public investment in education are positive and negative respectively but not significant. The short run estimates show that private investment is crowded in by public investment in defence and education. The effects of both aggregate capital expenditure and public investment in transportation and communications are positive but insignificant. While public investment in health has insignificant negative. For the other variables, aggregate demand proxy by output stimulates private investment in the long run when modelled with PIED, PIHE and PITCM. Similarly, bank credit to the private sector promotes private investment in the long run when modelled with PCE, PID, PIED and PIHE. User cost of capital is negatively related to private investment when modelled with PID and PITCM in the long run. Keywords: composition of public investment, private investment, crowding in and crowding out.
Authors and Affiliations
Awolaja Gbenga| Babcock University, Department Of Economics Banking and Finance, Oluwalaiye O. Babatunde| Babcock University, Department Of Economics Banking and Finance, Lawal Esther| Babcock University, Department Of Economics Banking and Finance
Keywords
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