Transcript The Role of the State in Promoting Regional

By
Michael Mbate
UN Economic Commission for Africa
4th Annual Conference for Regional Integration in Africa
Abidjan, Cote d’Ivoire
4th July 2013
Introduction
- Africa’s recent high growth is yet to translate into social-economic
development
- The private sector can help accelerate economic growth and
development by:
1. Increasing productivity and knowledge transfer
2. Promote an efficient allocation of resources and foster
competitiveness
3. Create employment opportunities and generate income
4. Complement the public sector in the provision of public goods
Introduction
Why private investment is still low in the region?
1. Quality of institutions and policies
2. Infrastructure deficits
3. Unstable macroeconomic and political environment
4. Market size
Research Question: What are the main determinants of private sector
development?
Focus: Policy and Institutional factors
Key message: The role of the state is vital in promoting an enabling
atmosphere for the private sector
Determinants of Private Investment
1.
2.
3.
4.
5.
6.
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Market size induces demand for products
GDP growth signals better market prospects
FDI spurs technology transfer and integrates local economies
into global markets
Infrastructure lowers the cost of doing business and promotes
trade
Human capital boosts productivity, R & D and innovation
Openness promotes access to markets and positive spillovers
Macroeconomic stability promotes price stability
Credit availability boosts entrepreneurship by expanding
business
Institutions design policies and frameworks
Model Specification
Baseline cross-country model:
Where:
y = private investment (% of GDP)
Xit = vector of control variables (GDP growth, population, trade,
exchange rate, human capital, investment, FDI, inflation)
ɳi = represents unobserved country heterogeneity
ԑit = represents the error term
Sample: 14 West African countries; Period: 1985 to 2011
Identification Strategy
Estimation Technique: System Generalized Methods of Moments
Justifications:
1. Autocorrelation due to yit-1
2. Control variables are endogenous
3. Time invariant country characteristics
Validity of Estimates:
1. Number of instruments count
2. Hansen Test
3. Difference in Hansen Test
4. Auto-correlation Test (AR-2)
Two step robust standard errors clusters within countries
Pair-wise Correlations
Fixed Effect Regressions
System GMM Regressions
Summary and Interpretation of Results
 Governance indicators are highly correlated with private investment
 Initial levels of private investment significantly affect a country’s future
accumulation of investment
 Trade is an important determinant of private investment
 FDI promotes private investment (technology and imitation channel)
 Exchange rate and inflation have a negative impact on the private
sector
Policy Recommendations
1.
It is important to design effective strategies that ensure FDI benefits
are internalized to promote and benefit the private sector
2.
There is need to promote trade ( especially intra-African trade ) and
promote trade facilitation (CFTA)
3.
It is vital to ensure macroeconomic stability through sound
governance and high quality institutions
4.
There is need for a comprehensive and coordinated regional
framework to address infrastructural deficits