Low investment is not the constraint on African development

Shantayanan Devarajan, William R. Easterly, Howard Pack

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This article analyzes the productivity of economy-wide investment across countries and tries to obtain some insight into the underlying process generating the aggregate results through a case study of the evolution of the manufacturing sector in Tanzania. We find that low investment has not been the major constraint on development in Africa. In Section II, we use cross-country regressions to explore whether public and private investment had a positive and significant effect on aggregate growth in Africa. Regardless of the true underlying production function, investment should be positively associated with growth, although the precise impact would vary with different functional forms. But we are searching for gross correlations that can be obtained from the available data. If a check of the initial screening is positive, we can search for more precise relations. Recognizing that private investment is endogenous, we use the method of instrumental variables (with the level of private investment at the beginning of the period as the instrument). Our basic finding is that public investment is not correlated with growth in Africa. Private investment is also not correlated with growth unless Botswana is included in the sample. A simple scatter plot of the data shows why: Botswana is the only country in Africa to have experienced high private investment rates and high growth. We provide a brief discussion of the experience of Botswana to justify excluding it from the sample.

    Original languageEnglish (US)
    Pages (from-to)547-571
    Number of pages25
    JournalEconomic Development and Cultural Change
    Volume51
    Issue number3
    DOIs
    StatePublished - Apr 2003

    ASJC Scopus subject areas

    • Development
    • Economics and Econometrics

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