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

Adama Messanh COMBEY



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.


Private investment; WAEMU; Dynamic fixed-effects estimator.

Full Text:


Arestis, P. (2009). New Consensus macroeconomics and Keynesian critique. Macroeconomic policies on shaky foundations-Whither mainstream economics. pp. 100-117. doi. 10.1007/978-0-230-29166-9_6

Athukorala, P.C. (1998). Interest Rates, Saving, and Investment: Evidence from Indian. Oxford Development Studies, 26(2), 153-169. doi. 10.1080/13600819808424151

Bank of England. (2005). The Bank of England Quarterly Model, London: Bank of England.

Bernanke, B. (1983). Irreversibility, Uncertainty and Cyclical Investment. Quarterly Journal of Economics, 98, 85-106. doi. 10.3386/w0502

Bosco, N.J. & Emerence, U. (2016). Effect of GDP, Interest Rate and Inflation on Private Investment in Rwanda. International Academic Journal of Economics, 3(1), 1-17.

Blackburne, E.F. & Frank, M.E. (2007). Estimation of Nonstationary Heterogeneous Panels. Stata Journal, 7(2), 197-208.

Choi, I. (2001). Unit Root Tests for Panel Data. Journal of International Money and Finance, 20(2), 249‐272. doi. 10.1016/S0261-5606(00)00048-6

Chudik, A. & Pesaran, M.H. (2015). Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors. Journal of Econometrics, 188, 393-420. doi. 10.2139/ssrn.2316329

Cuong, N.V. (2013). Do minimum wage increases matter to firm profitability? The case of Vietnam. Journal of International Development. doi. 10.1002/jid.2920

Dhakal, D., Nag, R., Pradhan, G., & Upadhyaya, K. P. (2010). Exchange rate volatility and foreign direct investment: Evidence from East Asian countries. The International Business & Economics Research Journal, 9(7), 121. doi. 10.19030/iber.v9i7.603

Dixit, A.K., & Pindyck, R.S. (1994). Investment under uncertainty. Princeton university press. doi. 10.2307/2329279

Dje, P. (2007). Les determinants des investissements directs etrangers dans les pays en developpement: leçons pour l’UEMOA. Banque Centrale des Etats de l'Afrique de l'Ouest. Document d’Etude et de Recherche, No. DER/07/03.

Dramani, L. & Laye, O. (2008). Les déterminants de l'investissement privé au Sénégal: une approche VAR structurel. Republique du Senegal, Ministere de l'Economie et des Finances.

Feng, Y. (2001). Political freedom, political instability, and policy uncertainty: A study of political institutions and private investment in developing countries. International Studies Quarterly, 45(2), 271-294. doi. 10.1111/0020-8833.00191

Ghura, D., & Goodwin, B. (2000). Determinants of private investment: a cross-regional empirical investigation. Applied Economics, 32(14), 1819-1829. doi. 10.1080/000368400425044

Greene, J., & Villanueva, D. (1991). Private investment in developing countries: an empirical analysis. Staff Papers, 38(1), 33-58. doi. 10.2307/3867034

Guillaumont, P., Jeanneney, S.G., & Brun, J.F. (1999). How instability lowers African growth. Journal of African Economies, 8(1), 87-107. doi. 10.1093/jae/8.1.87

Guimaraes, R. & O. Unteroberdoerster. (2006). What’s Driving Private Investment in Malaysia? Aggregate Trends and Firm-Level Evidence. IMF Working Paper, No. 06/90. Washington, D.C.: International Monetary Fund. doi. 10.5089/9781451864502.001

Haepp, T., & Lin, C. (2015). How Does the Minimum Wage Affect Firm Investments in Fixed and Human Capital? Evidence from China. In Society of Labor Economists-European Association of Labour Economists World Conference, Montreal, Canada.

Hartman, R. (1972). The Effects of Price and Cost Uncertainty on Investment. Journal of Economic Theory 5(2), 258-266. doi. 10.1016/0022-0531(72)90105-6

Im, K.S., Pesaran, M.H., & Y. Shin. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115(1), 53-74. doi. 10.1016/s0304-4076(03)00092-7

IMF. (1983). Interest rates policies in developing countries. Occasional paper. Research Department of The International Monetary Fund. doi. 10.5089/9781557751041.084

Jorgenson, D.W. (1963). Capital theory and investment behavior. The American Economic Review, 53(2), 247-259.

Keho, Y. (2016). Impact of Budget Deficit on Private Consumption in WAEMU Countries: Evidence from Pooled Mean Group Estimation. International Journal of Economics and Finance, 8(3), 189. doi. 10.5539/ijef.v8n3p189

Khurshid, A. (2015). The effect of interest rate on investment; Empirical evidence of Jiangsu Province, China. Journal of International Studies, Vol, 8(1), 81-90. doi. 10.14254/2071-8330.2015/8-1/7

Kinda, T. (2008): Les déterminants des flux de capitaux privés dans l’UMOA: Une approche empirique sur données de panel. Revue de la Stabilité Financière dans l'Union Economique et Monétaire Ouest-Africaine, 2, 41-68.

Koukpo, M. (2005). Analyse des déterminants des investissements directs étrangers dans les pays de l'UEMOA. Institut Africain de Développement Economique et de Planification.

Lugo, O.A.M. (2008). The differential impact of real interest rates and credit availability on private investment: evidence from Venezuela. In Participants in the meeting.

Levin, A., Lin, C.F. & Chu, C. (2002). Unit Root Tests in Panel data: Asymptotic and Finite‐sample Properties. Journal of Econometrics, 108(1), 1‐24. doi. 10.1016/s0304-4076(01)00098-7

Maddala, G.S. & Wu, S. (1999). A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test. Oxford Bulletin of Economics and Statistics, 61(S1), 631-52. doi. 10.1111/1468-0084.0610s1631

Mankiw, N.G., Phelps, E.S., & Romer, P.M. (1995). The growth of nations. Brookings Papers on Economic Activity, 1995(1), 275-326. doi. 10.2307/2534576

Manyong, V.M. (2005). Agriculture in Nigeria: identifying opportunities for increased commercialization and investment. IITA. doi. 10.15862/66eangvn115

Mbaye, A. (2006). Les Déterminants de l'investissement privé dans les pays de l'UEMOA. Institut Africain de Développement Economique et de Planification.

McKinnon, R.I. (1973). Money & Capital in Economic Development. Washington, DC: The Brookings Institution. doi.10.2307/40201473

McNabb, K. & LeMay-Boucher, P. (2014). Tax Structures, Economic Growth and Development. ICTD Working Paper, No. 22.

Munir, R., Awan, R.U. & Hussain, Z. (2010). Investment, Savings, Interest Rate and Bank Credit to the Private Sector Nexus in Pakistan. International Journal of Marketing Studies, 2(1), 140. doi. 10.5539/ijms.v2n1p140

Osundina, J.A. & Osundina C.K. (2014). Interest Rate as a Link to Investment Decision in Nigeria. IOSR Journal of Economics and Finance. 2(4), 8-14. doi. 10.9790/5933-0240814

Ouattara, B. (2004). Modelling the long run determinants of private investment in Senegal. Centre for Research in Economic Development and International Trade, University of Nottingham.

Persson, T. & Tabellini G. (2006). Democratic capital: The nexus of political and economic change, NBER Working Paper, No. 12175. doi. 10.3386/w12175

Pesaran, M.H., & Smith, R.P. (1995). Estimating Long-run Relationships From Dynamic Heterogeneous Panels. Journal of Econometrics, 68(1), 79-113. doi. 10.1016/0304-4076(94)01644-F

Pesaran, M.H., Shin, Y., & Smith, R.P. (1997). Estimating Long-run Relationships in Dynamic Heterogeneous Panels. DAE Working Papers Amalgamated Series No. 9721. doi. 10.1016/0304-4076(94)01644-f

Pesaran, M.H., Shin, Y. & Smith, R.P. (1999). Pooled Mean Group Estimation of Dynamic Heterogeneous Panels. Journal of the American Statistical Association, 94(446), 621-634. doi. 10.2307/2670182

Pesaran, M. (2006). Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica, 74(4), 967-1012. doi. 10.1111/j.1468-0262.2006.00692.x

Pischke, J.S. (2005). Labor market institutions, wages, and investment: Review and implications. CESifo Economic Studies, 51(1), 47-75. doi. 10.1093/cesifo/51.1.47

United Nations, (2000), Report of the International Conference on Financing for Development, Monterrey.

Rama, M. (2001). The Consequences of doubling the minimum wage: The case of Indonesia. Industrial and Labor Relations Review 54(4), 864–881. doi. 10.2307/2696117

Roache, S.K. (2006). Domestic Investment and the Cost of Capital in the Caribbean. IMF Working Paper 06/152. Washington, D.C.: International Monetary Fund. doi. 10.5089/9781451864120.001

Serven, L. (2003). Real-exchange-rate uncertainty and private investment in LDCs. Review of Economics and Statistics, 85(1), 212-218. doi. 10.1162/rest.2003.85.1.212

Shaw, E. (1973). Financial Deepening in Economic Development. New York: Oxford University Press.

Stasavage, D. (2000). Private investment and political uncertainty. Vol. 2000

Svensson, J. (1999). Investment, Property Rights and Political Instability: Theory and Evidence. European Economic Review. 42(7), 1317-1341. doi. 10.1016/s0014-2921(97)00081-0

Wai, U.T., & Wong, C.H. (1982). Determinants of private investment in developing countries. The Journal of Development Studies, 19(1), 19-36. doi. 10.1080/00220388208421848

Westerlund, J. (2007). Testing for Error Correction in Panel Data. Oxford Bulletin of Economics and Statistics 69(6), 709–748. doi. 10.1111/j.1468-0084.2007.00477.x

Wicksell, K. (1898), Geldzins und Güterpreise, Verlag Gustav Fischer: Frankfurt. English translation in R.F. Kahn (1965), Interest and Prices, Kelley: New York. doi. 10.2307/2956550

White, S. (2005). Enhancing private investment for development, Policy guidance for development agencies.

Woodford, M. (2003), Interest and Prices: Foundations of a Theory of Monetary Policy, Princeton: Princeton University Press. doi. 10.1017/s1365100505040253

Zouhaier, H. & Kefi, M.K. (2012). Interaction between political instability and investment. Journal of Economics and International Finance, 4(2), 49. doi. 10.5897/jeif11.127



  • There are currently no refbacks.


Journal of Economics and Political Economy - J. Econ. Pol. Econ. - JEPE -

ISSN: 2148-8347

Editor:   Secretarial:   Istanbul - Turkey.

Copyright © KSP Library