Public Debt and Private Investment in Subsaharan Africa

Abstract

The purpose of this study is to analyze the effect of public debt on private investment in Sub-Saharan Africa SSA To this end we proceed with the econometric estimation of the data for a panel of 43 SSA countries over the period 2000- 2018 All of this data comes from the World Bank IDS WDI WGI and the IMF WEO In order to achieve robust results three estimation methods are used the Ordinary Least Squares OLS method the Ordinary Doubles Least Squares ODLS method and the Quantile regression method All other things being equal the results show that public debt reduces private investment because of credit rationing and higher taxes to honor debt services However we find that the debt from China is positively correlated with private investment Therefore to reconcile public debt and private investment SSA countries need to implement appropriate policies that will ensure that public debt is used optimally to further stimulate private investment Indeed SSA countries must encourage and monitor the channeling of financial resources to productive activities likely to strengthen private investment In addition African leaders must implement policies that reduce the interest rate and in turn the crowding out effect of the private sector Public-private partnerships should also be encouraged