Public investment and inclusive growth in Africa

Abstract

PurposeThe increasing debate on the viability of broad-based productive employment in stimulating the participatory tendencies of growth makes it instructive to inquire how the African “Big Five” have fared in their quests to ensure growth inclusiveness through public investment-led fiscal policy.Design/methodology/approachTime varying structures and nonlinearities in the government investment series are captured through the non-linear autoregressive distributed lag, asymmetric impulse responses and variance decomposition estimation techniques.FindingsStudy findings show that positive investment shocks stimulate growth inclusiveness by enabling access to opportunities through job creation and productive employment for the populace; this result is evident for Morocco and Algeria. However, there is a non-negligible evidence that shocks due to decline in the government investment manifest in insufficient capital stocks and limited investment opportunities, impede access to opportunities by the populace, hinder labour employability and make growth less inclusive. Furthermore, all short-run findings corroborate long-run results regarding the reaction of inclusive growth to positive investment shocks with the exclusion of South Africa; which, unlike its long-run finding, shows that shocks due to increases in investment can foster growth inclusiveness. Also, in respect to short-run negative investment shocks, Nigeria is the only country that does not align its long-run findings.Practical implicationsThat public investment shocks make or mar inclusive growth effectiveness shows the need for appropriate fiscal policy consolidation and automatic stabilization guidelines to ensure buffers against shocks and to enhance government investment generation efficiency for a sustainable inclusive growth process that is more participatory in Africa.Originality/valueThis study is the first to accommodate possibilities of shocks in the inclusivity of growth analysis for the five biggest African economies which jointly account for over half of the recorded growth in the continent. As such, there is quantitative evidence that government investment is a potent determinant of growth inclusiveness and it is susceptible to structural changes and time variation of shocks.

Nonlinear threshold approach for asymmetric effects of government size on economic growth in an emerging Asian economy: the Malaysian experience

“…This suggests that the Malaysian government does not achieve the full potential for its government investment expenditure and the government investment size in Malaysia in general operates below the optimal level. Barro (1990) , Fournier (2016) and Adeosun et al. (2020) pointed out that productive government expenditure especially on investment directly impacts the private sector and thus a positive effect on economic growth, and vice versa.…”

“…This suggests that the Malaysian government does not achieve the full potential for its government investment expenditure and the government investment size in Malaysia in general operates below the optimal level. Barro (1990), Fournier (2016) and Adeosun et al (2020) pointed out that productive government expenditure especially on investment directly impacts the private sector and thus a positive effect on economic growth, and vice versa. Moreover, Butkiewicz and Yanikkaya (2011) opined that developing countries should invest in infrastructure and confine their governments' operating expenditure to accelerate the future growth and improve economic growth.…”

Pro-poor and inclusive growth in West Africa

“…Here, we extrapolate quite loosely that the theoretical underpinning that hold for economic growth suffices for inclusive growth (Adeosun et al, 2020a). Therefore, we adopt Barro endogenous growth theory in specifying a baseline panel model as:…”

Investment and inclusive growth in sub-Saharan Africa

“…It is clear that standard economic theory provides a solid theoretical foundation for understanding the effects of fiscal-instruments on economic growth (Easterly and Levine, 2001;Fedderke et al, 2006;Kodongo and Ojah, 2016). The relationship between the domesticinvestment components of fiscal policy and inclusive growth, nonetheless, is quite unresolved while the concept of inclusive growth, particularly in Africa, is still nascent (Ngepah, 2017;Adeosun et al, 2020). GDP per capita (i.e.…”

“…Despite the increasing significance of the SSA's investment potential, domesticinvestments in key sectors remain below capacity in augmenting capital and labor inputs and in attaining these aforementioned milestones. The region faces huge investment financing gaps, investment generation efficiency constraints coupled with debt accumulation without a commensurate improvement in investment (Kodongo and Ojah, 2016;Adeosun et al, 2020Adeosun et al, , 2021. With unresolved fiscal issues, empirical research into the effectiveness of domesticinvestment towards inclusive growth is critical.…”