Title: An Investigation of Macroeconomic Determinants of Domestic Private Investment Evidence from East Africa
Abstract: This study mainly emphasized on the determinants of domestic private
investment in East Africa region with the panel data set from the period of 2000-
2012. Based on Econometric findings in which it supports fixed effect model
estimation over other methods of procedure confirmed that domestic private
investment affected by different parameters: precisely, macroeconomic factors
including variations in output and real per capita growth, fiscal and monetary
policy and exchange rate movement in the economy are the main factors for the
variability of domestic private investments across different times. The estimated
result of various macroeconomic variables and other policy related features are
estimated and has influenced the performance of domestic private investment in
the region. This finding also presents pooled OLS outcomes to see the disparity
from FE estimation which is preferred from RE model. Hence, domestic private
investment has positively associated with real GDP growth, financial
development as availability of credit to the private sector in percentage of GDP
creates a favorable environment for investment activity and has a virtuous effect
through more investment, more profit and stimulates further investment
opportunities and boost economic growth. The effect of human capital
development capture by school enrollment (primary) also has a positive effect on
the development of domestic private investment in the region.
On the contrary, instable macroeconomic environment; in the presence of
inflationary pressure, high external debt, fluctuation in terms of trade, real
exchange rate movements; and public investment, real interest rate, and the level
of freedom index exhibits an unfavorable effect on the domestic private
investment performance in the region. In addition, FDI doesn’t have statistical
significant impact in level form but the logged effect of domestic private
investment negatively and significantly associated with it. Thus, improving
macroeconomic environment through adjusting fiscal policy in lowering budget
deficits and minimizing public debt creates right trajectory; and in the same way
through the monetary channel control of inflation and reduces the real interest
rates believes to create stimulating and rewarding effect for domestic private
investment activities in the region.
Publication Year: 2014
Publication Date: 2014-12-12
Language: en
Type: article
Access and Citation
Cited By Count: 6
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