Public investment expenditure and domestic private investment in Cameroon: Autoregressive Vector Analysis

Abstract

This work attempts to study the effect of public investment expenditure on domestic private investment in Cameroon during the period 1982-2021. The central question of this study concerns the relationships that exist between public investment expenditure and domestic private investment in Cameroon. To achieve our objectives, we opted for a vector autoregressive (VAR) analysis on time series data to capture the simultaneous effects of our study variables on each of the chosen variables at the national level. The empirical results from our VAR model show that public investment encourages private domestic investment in Cameroon, although it presents an insignificant inverse effect in other periods when considering the lag criteria specified by Akiake. Thus, public investment expenditure has a positive effect on private investment in Cameroon, indicating a crowding-in effect between these aggregates, although depending on the lag in the model, a crowding-out effect is also observed. Based on this finding, we recommended as a complementary development policy to the government and the private sector that the Cameroonian state should focus on the development and maintenance of infrastructure, education, industrialization, good governance, and security at the expense of superfluous political expenditures without economic evaluation.

Keywords: Public expenditure, public investment, private investment, Vector Autoregressive Analysis, crowding-in effect, crowding-out effect.

Classification JEL: E22-H52-H54-R42

Paper type: Empirical Research