Citations


Contact Us

For Marketing, Sales and Subscriptions Inquiries
2637 E Atlantic Blvd #43110
Pompano Beach, FL 33062
USA

Conference List

Effect of Budget Defict on Private Investment in East African Community for the Period 1981-2015: A Panel Data Analysis

Naftaly Gisore Mose

,

Irene Jepchumba Keino

Naftaly Gisore Mose 1

Irene Jepchumba Keino 2

  1. PhD Candidate at Egerton University, Lecturer, Department of Economics, Technical University of Kenya 1

  2. Lecturer, Department of Economics, Egerton University, Kenya 2

Pages: 26-37

DOI: 10.18488/journal.62.2017.42.26.37

Share :

Article History:

Received: 04 October, 2016
Revised: 03 April, 2017
Accepted: 10 May, 2017
Published: 08 June, 2017


Abstract:

Over the period of thirty four years, between 1981 and 2015, the East African Community economies have witnessed inconsistent and downward trend on the level of private investments as percentage of GDP. Several studies have been done regarding the determinants of private investment at country level while others have focused on budget/fiscal deficit, regional integration and economic growth but the findings are inconsistent. However, from the empirical literature review, most of the studies ignore effect of budget deficit on private investment. It is against this background that this study was carried out to investigate the effect of budget deficit on private investment in EAC using panel data over the period 1981-2015. The study adopted the Modified Flexible Accelerator model. Using Levin et al. (2002) to test the unit root, the study found the variable to be non-stationary at level. Co-integration test error correction model were carried to analyze the long-term and short-term dynamic of the selected macroeconomic variables on budget deficit account. The study results showed that fiscal deficit had a negative effect on private investment in the region. Debt reduction and government expenditure scaling down strategies should also be adopted in the region so as to improve the fiscal deficit hence boosting private investment and faster real GDP growth in the long run.

Contribution/ Originality
This study contributes in the existing literature in the field of public finance. This study uses new panel estimation methodology. This study originates new formula of controlling budget deficit. This study is one of very few studies which have used panel data. The paper contributes the first logical analysis that increasing budget deficit discourages investment. The paper's primary contribution is finding that fiscal deficit negates investment. This study documents controlling budget deficit.

Keywords:

Budget deficit, Private investment, East African community, Panel data, Co-integration, Economic growth.

Video:

Reference:

  1. Agenor, P.R. and P. Montiel, 1996. Development macroeconomics. Newjesey: Princeton University Press.
  2. Asante, Y., 2000. Determinants of private investment behavior, African economic research consortium. Research Paper No. 100. AERC. Nairobi.
  3. Aschauer, D.A., 1989. Is public expenditure productive? Journal of Monetary Economics, 23(2): 177-200. View at Google Scholar 
  4. Asogwa, F.O., 2013. The crowding-out effect of budget deficit on private investment in Nigeria. Eeuropean Journal of Business Management, 7(20): 2222-2839. View at Google Scholar 
  5. Babu, O., N. Gisore, S. Kiprop, L. Kibet and A. Kalio, 2015. Eeffect of domestic debt on economic growth in the East African community. American Journal of Research Communication, 3(9): 73-95. View at Google Scholar 
  6. Chenery, H.B., 1952. Overcapacity and the acceleration principle. Econometrica, 20(1): 1-28 View at Google Scholar | View at Publisher
  7. Clark, J.M., 1917. Business acceleration and the law of demand: A technical factor in economic cycles. Journal of Political Economy, 25(1): 217-235. View at Google Scholar | View at Publisher
  8. East African Community Secretariat (EAC), 2011. East African community figures and facts. Arusha, Tanzania: EAC Secretariat.
  9. Erenburg, S.J., 1995. Public and private investment: Are there causal linkages? Journal of Macroeconomics, 17(1): 1-30. View at Google Scholar 
  10. Gisore, N., S. Kiprop, L. Kibet, A. Kalio and J. Ochieng, 2014. Effect  of government expenditure on economic growth in East Africa. European Journal of Business and Social Sciences, 3(8): 289 – 304. View at Google Scholar 
  11. Glovanni, C., 2014. Can conventional macroeconomic policies prevent persistent stagnation in European union? Centre for Development Policy and Research, Policy Brief No. 5: 1-11.
  12. Greene, J. and D. Villanueva, 1991. Private investment in developing countries: An empirical analysis. IMF Staff Paper, 38(1): 33-58. View at Google Scholar 
  13. Hausman, J.A., 1978. Specification tests in econometrics. Econometrica, 46: 1251-1272. View at Google Scholar 
  14. Isah, I.P., 2012. Deficit financing and its implication on private sector investment: The Nigerian experience. Arabian Journal of Business and Management, 1(9): 45-62. View at Google Scholar | View at Publisher
  15. Jean, S. and C. Ambert, 2011. East African regional integration strategy Paper 2011-2015, African Development Bank.OREA/OREB.
  16. Jorgeson, D.W., 1967. The theory of investment behaviour, determinants of investment behaviour. Cambridge: National Bureau of Economic Research.
  17. Kasekende, L. and N.K. Ngeno, 2000. Regional integration and economic integration in Eastern and Southern Africa. London: Macmillan Press Ltd.
  18. Keynes, J.M., 1936. The general theory of employment, interest and money. London: Macmillan.
  19. Koyck, L.M., 1954. Distributed lags and investment analysis. Amsterdam: North Holland Pub. Co.
  20. Levin, A., C.F. Lin and S.J. Chu, 2002. Unit root tests in panel data: Asymptotic and finite sample properties. Journal of Econometrics, 108(1): 1-24. View at Google Scholar | View at Publisher
  21. Mariara, K.J. and T. Kiriti, 2002. Structural adjustment, poverty and economic growth: An analysis for Kenya. African Economic Research Consortium, Research Paper No.124.
  22. Matwanga, F.L., 2000. Determinants and constraints to private investment; the case of Kenya. Dakar: African Institute for Economic Development and Planning (IDEP).
  23. Menjo, I.K. and C.S. Kotut, 2012. Effects of fiscal policy on private investment and economic growth in Kenya. Journal of Economics and Sustainable Development, 3(7): 8-16. View at Google Scholar 
  24. Morrissey, O., 2009. Investment provision in regional integration agreements for developing countries. Working Paper No. 1995-2009, Credit Research Papers, Univ of Notttingham, 08/06: 1-22.
  25. Pedroni, P., 1999. Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics, 61(1): 653 – 670. View at Google Scholar 
  26. Pfeffermann, G.P. and A. Madarassy, 1992. Trends in private investment in developing countries: International finance corporation. Washington D.C.: The World Bank.
  27. Ram, R., 1986. Government size and economic growth: A new framework and some evidence from cross-section and time-series data. American Economic Review, 76(1): 191-203. View at Google Scholar 
  28. Sakr, K., 1993. Determinants of private investment in Pakistan. IMF Working Paper No.30.
  29. Samuelson, P., 1939. A synthesis of the principle of acceleration and the multiplier. Journal of Political Economy, 47(6): 786-797. View at Google Scholar 
  30. Tobin, J., 1969. A general equilibrium approach to monetary theory. Journal of Money, Credit and Banking, 1(1): 15-29. View at Google Scholar | View at Publisher
  31. UNCTAD, 2006. The least developed countries report: Developing productive capacities, united nations on trade and development. Geneva: UNCTAD/LDC/2006.
  32. Wai, U.T. and C.-H. Wong, 1982. Determinants of private investment in developing countries. Journal of Development Studies, 19(1): 19-36. View at Google Scholar 
  33. Wooldridge, J.M., 2006. Introductory econometrics, a modern approach. 3rd Edn., Cincinnati, OH: South Western College Publishing.

Statistics:

Google Scholor ideas Microsoft Academic Search bing Google Scholor

Funding:

This study received no specific financial support.

Competing Interests:

The authors declare that they have no competing interests.

Acknowledgement:

Both authors contributed equally to the conception and design of the study.

Related Article

( 1 ) Relationships Between Leadership Roles and Project Team Effectiveness as Perceived by Project Managers in Malaysia
( 2 ) Relationships among Team Trust, Team Cohesion, Team Satisfaction and Project Team Effectiveness as Perceived by Project Managers in Malaysia
( 3 ) The Effects of Exchange Rate Liberalization in Kenya on French Beans Exports
( 4 ) Does the Mena Countries May Converge in GDP to Southern European One? The Effects of International Trade
( 5 ) Can the Interdependence Effect and the Contagion Phenomena be Related with One Another?
( 6 ) Corruption’s and Democracy’s Effects on Economic Growth
( 7 ) Effective Tax Administration and Institutionalization of Accounting Systems in Small and Medium Scale Enterprises: Evidence from Nigeria
( 8 ) Moderating Effect of Demographics on Monetary Motivation and Employees Job Performance Relationship: Evidence from Malaysia
( 9 ) Consideration the Effects of Water Sector Investment on Economic Growth in Iran
( 10 ) Influence Internship Learning Effect in Business Service Sector: Using Internship Self-Efficacy as the Mediator Variable
( 11 ) The Effect of Selected Financial Ratios on Profitability: An Empirical Analysis of Listed Firms of Cement Sector in Saudi Arabia
( 12 ) An Empirical Test on Effect of Intra-Product Trade on Regional Income Distribution: The Case of Liaoning, China
( 13 ) Effects of Advertising on Consumer Behavior in Low Density Houses: The Case of Marlborough, Zimbabwe
( 14 ) Moderating Effects of Project Management Experience, Project Team Size, Project Duration and Project Value Size on the Relationship between Project Manager’s Leadership Roles and Project Team Effectiveness in Malaysia
( 15 ) The Effects of Changes in Accounting Standards on Value Relevance of Financial Statement Information of Malaysia and Nigeria Banks
( 16 ) The Effect of Outsourcing on Anglogold Ashanti Obuasi Mines Performance
( 17 ) Organisational Politics – Causes and Effects on Organisation and Employees
( 18 ) The Mediating Effect of Market Orientation on the Relationship between Entrepreneurial Orientation Dimensions and Organizational Performance: A Study on Banks in Libya
( 19 ) Confirming the Mediation Effect of A Structural Model By Using Bootstrap Approach: A Case Study of Malaysian 8th Grade Students’ Mathematics Achievement
( 20 ) Land Use/Land Cover Change and its Effects on Bamboo Forest in Benishangul Gumuz Region, Ethiopia
( 21 ) Emotional Workgroup Performance and Group Effectiveness Egyptian Context
( 22 ) The Effect of Public Debt on Domestic Product and Unemployment (An Empirical Study on the Palestinian Economy)
( 23 ) The Effect of Exchange Rate Changes on Consumer Prices in Nigeria: Evidence from VECM Model
( 24 ) The Effect of Access and Quality of Education on Economic Development in Botswana
( 25 ) Effect of Media Transportation and Advertising Transportation on Customers Responsiveness
( 26 ) The Effect of Personal Factors on the Customer Rating of the Quality of Services of the Islamic Banks Operating in the Syrian Coast
( 27 ) Does the Holiday Effect Differ from Religious to Non-Religious Holidays? Empirical Evidence from Egypt
( 28 ) Effects of Environmental Satisfaction on Family Displacement Case Study: Gohar Dasht Region, Karaj City
( 29 ) Effect of Budget Defict on Private Investment in East African Community for the Period 1981-2015: A Panel Data Analysis
( 30 ) Comparative Analysis of the Effectiveness of Coub-Douglas, Real Business Cycle, and Keynsian Growth Models in Determining Economic Growth in Nigeria
( 31 ) Effects of Corporate Social Responsibility on Banks Financial Performance in Nigeria: A Study of United Bank of Africa
( 32 ) The Effects of Exchange Rate Variability on Trade Flows in Nigeria: A Cointegration Analysis
( 33 ) The Effect of Work-Life Balance on Accounting Ethics
( 34 ) The Moderating Effect of Governance Mechanisms on the Relationship Between Innovation Strategy and the Performance
( 35 ) Effect of Institutional Factors on Foreign Direct Investment in Nigeria
( 36 ) An Evaluation of Effectiveness of Oversight Committees: A Case of City of Johannesburg, Section 79 Committees
( 37 ) The Effect of Internal and External Factors of Companies on Profitability and its Implications on Stock Price Index of State-Owned Banks
( 38 ) Africa's Human Capital Development: Is Public Finance Management an Effective Strategy?
( 39 ) Analysis of the Effects of Pull and Push Factors on Brain Drain: An Example of Turkey
( 40 ) The Effect of Selected Factors on Tax Revenue Mobilization in Ethiopia: The Case of Amhara Region
( 41 ) The Mediating Effect of Financial Self-Efficacy on the Financial Literacy-Behavior Relationship: A Case of Generation Y Professionals
( 42 ) Study on the Effect of Foreign Investment on Anhuis Industrial Structure Optimization
( 43 ) Activity Cost Management and its Effect on Enterprise Productivity
( 44 ) Effects of Socio-Cultural Diversity on the Performance of Private Health Care Organizations in Kogi State
( 45 ) Analysis of Effect of Profitability, Capital, Risk Financing, the Sharia Supervisory Board and Capabilities Zakat in Islamic Perspective with Circular Approach Causastion on Islamic Banks in Indonesia
( 46 ) The Effect of Corporate Social Responsibility Disclosure on Corporate Financial Performance
( 47 ) An Assessment of the Relationship between Budget Deficit Syndrome and Consumer Welfare in Nigeria (1985 – 2014)
( 49 ) The Link Between Agricultural Budgetary Allocation and Economic Growth in Nigeria
( 51 ) A Factor Analysis Approach Towards a Study of the Factors Affecting Students’ Choice of Higher Education Institution: A Case Study of a Private Institution (Twintech International University College of Technology)
( 53 ) Public-Private Partnership as a Strategy for E-Governance Funding in Africa: The Gains and the Pains
( 54 ) Firm-Level Investment Decisions Under Uncertainty and Irreversibility in Zimbabwes Private Firms
( 56 ) Incidence of Short Term Private Capital Outflow: Empirical Analysis in Nigeria
( 57 ) The Impact of Investment Climate Reforms on the Development of Small and Medium Sized Enterprises in Nigeria: A Policy Brief
( 58 ) Foreign Direct Investment (FDI) and Employment: A Case of Province of Punjab, Pakistan
( 60 ) Role of Foreign Investment and External Debt in Determination of Exchange Rate
( 61 ) Insecurity and Foreign Direct Investment in Nigeria
( 62 ) The Investment Performance of Socially Responsible Investment in Japan
( 63 ) Managerial Judgement Versus Financial Techniques in Strategic Investment Decisions: An Empirical Study on the Syrian Coastal Region Firms
( 64 ) The Lead-Lag Relationships between Construction Investment and GDP: Granger Causality Tests and Impulse Responses Using Japanese Data
( 65 ) Investment Climate Rating Evaluation: The Case of Ukrainian Economy
( 69 ) Foreign Direct Investment in Zimbabwe: The Role of Uncertainty, Exports, Cost of Capital, Corruption and Market Size
( 70 ) Foreign Direct Investment - Growth Linkage in Sub-Saharan Africa: Is Governance a Mediating Factor?
( 72 ) Family Leadership and Small to Medium Sized Enterprises Research and Development Investments
( 73 ) The Development of Participated Environmental Education Model for Sustainable Mangrove Forest Management on Eastern Part of Thailand
( 74 ) The Technical Efficiency of Collective Irrigation Schemes in South-Eastern of Tunisia
( 75 ) An Assessment of the Impact of Information Communication Technology (ICT) On the Administration of Public Records: A Case Study of the Bolgatanga Municipal Assembly in the Upper East Region of Ghana-West Africa
( 77 ) Technological Innovation in Central and Eastern Europe: What’s the Contribution of Innovation Policy?
( 78 ) The Relationship between Financial Development, Economic Growth, and Inflation: Evidence from Southeast Asia
( 79 ) How Telecommunication Development Aids Economic Growth: Evidence from Itu Ict Development Index (IDI) Top Five Countries for African Region
( 80 ) Institutionalising and Mainstreaming Policy Analysis Culture in African Environments
( 82 ) Impact of Telecommunications Market Liberalization on Labor Productivity in Economic Community of West African States
( 83 ) Trade Policy and Democracy for Development in Central African Countries
( 84 ) Geographical Starting Points the Analysis of Current Rural Problems in Montenegro: Case Study of Rural Local Community Kralje
( 85 ) A Theoretical Review on Critical Success Factors (CSFS) of Entrepreneurship Programs in Community College
( 86 ) Kuala Lumpur Urban Biodiversity: Birds Community in Urban Public Parks
( 89 ) Health Care Outcomes, Malnutrition and Food Security in Southern Africa Development Community: A Quantile Regression Approach
( 90 ) Consideration the Relationship Between Information Communications Technology and Economic Growth in Top 10 Economic
( 93 ) Importance of Corporate Governance Quality and Voluntary Disclosures of Corporate Governance Information in Listed Malaysian Family Controlled Businesses
( 95 ) Development of Logarithmic Equations for Statistical Sample Determination
( 96 ) A Review on Criteria for Green Infrastructure to be Adopted by Local Authorities
( 97 ) Cross-Cultural Leadership Intelligence: Recommendations for Kenya
( 98 ) Improved Performance Through Empowerment of Small Industry
( 99 ) Challenges of Human Rights Abuses in Nigerian Democratic Governance – Which Way Forward ?
( 100 ) Teachers Characteristics and Students’ Performance Level in Senior Secondary School Financial Accounting
( 101 ) Survey of Students’ Academic Achievement and Mathematics Identity-Formation
( 102 ) Ensuring Quality Provision of Education for All: Discovering Challenges Faced by Teachers of Students with Learning Disabilities in Regular Primary Schools in Masvingo District
( 103 ) A Study of Transnational and Transformation Leadership Styles and Factors Affect The Leadership Style
( 104 ) The Role of Information and Communication Technology in Rural Socio-Economic Development in Africa
( 105 ) Conceptual Framework of Green Infrastructure Performance Evaluation for Local Authority
( 106 ) Social Security; A Public Policy for Good Governance in Nigeria: The Role of Nigerian Legislature
( 108 ) The Association Between Corporate Risk Disclosure and Firm Performance in Emerging Country – The Case of Egypt
( 110 ) Is Brics a Viable Solution for Russia in the Context of the Present Eu’s Economic Sanctions?
( 111 ) Structural Breaks and the Long-Run Stability of Demand for Real Broad Money Function in Nigeria: A Gregory-Hansen Approach
( 112 ) The Impact of Dividend Policy on Shareholders’ Wealth before and After Financial Melt down: Evidence from FMCG Sector in India
( 113 ) Stock Market Performance and Economic Growth: Evidence from Nigeria Employing Vector Error Correction Model Framework
( 114 ) The Biodiesel Market in Brazil and the Prospects for the Sector
( 115 ) Challenges and Survival Strategies for Women in Small Scale Catering Business: A Case Study of Siyaso Magaba, Mbare
( 116 ) The Influence of Information Technology and Communication Supply Chain Management Performance for Greater SME Manufacturing in Aguascalientes
( 117 ) Emergent Behavior of “Rational” Agents in Some Forgotten N-Person Games
( 118 ) Leveraging Telematics for Optimal Fleet Performance
( 119 ) Income Elasticity of Poverty: Estimates for South Asian Countries
( 120 ) Profit And Loss Sharing As an Offshoot for Bank Stability: A Comparative Analysis
( 121 ) The Potential of Rural–Urban Linkages for Sustainable Development and Trade
( 122 ) Workplace Bullying: Modelling Construct Validity in an Australian Public Sector Workforce
( 126 ) Estimating Value at Risk for Sukuk Market Using Generalized Auto Regressive Conditional Heteroskedasticity Models
( 127 ) Share Options, Share Award and Firm’s Performance: Evidence from Malaysian Public Listed Companies
( 131 ) Various International Experiences in Waste Management - Useful Lessons for Algeria
( 133 ) Investigating the Demand of Small Hotel and Restaurant Businesses for Bank Financing: The Case of Turkey
( 134 ) A Review on EU Transportation Projects within the Case of Turkey for European Union Regional Development Policy
( 136 ) Appointment of Directors and Performance of Deposit Money Banks in Sub Saharan Africa: Do We Need More Executive or Non-Executive Directors?
( 137 ) Development of the National Economies and the Foreign Trade Relations between Ukraine and Bulgaria (In the Period 2005-2014)
( 139 ) Forecasting-Based Carry Trade Using Pegged Currency: A Case of Omani Rial
( 140 ) The Indirect Impact of Overconfidence on the Performance of Tunisian Firms Through their Financing Structure
( 141 ) A Theoretical Analysis Upon the Environmental Health and Justice Issue: A Case Study for a Comparison Between G20s Unitary and Federal Members
( 142 ) Academic Mobility for Engineering and Technology Graduates in Africa: Lessons and Experiences from the Implementation
( 143 ) Rice Farmer and Capital Formation: A Case Study of Rice Farmer's Credit Cooperative in Itoikin, Ikosi-Ejirin LCDA, Lagos State
( 144 ) How the Principles of the Sharing Economy Can Improve Organizational Performance of the US Public School System
( 146 ) An Econometric Planning Model of Urban Forestry as a Measure of Sustainability: A Matrix of Action and Change
( 147 ) Relevance of Stakeholders Theory, Organizational Identity Theory and Social Exchange Theory to Corporate Social Responsibility and Employees Performance in the Commercial Banks in Nigeria
( 148 ) Analyzing Factors Affecting the Success of Social Media Posts for B2b Networks: A Fractional-Factorial Design Approach
( 149 ) The Influence of Communication, Work Motivation and Career Development on Elementary School Teacher’s Job Performance in Medan, Indonesia
( 151 ) Construction and Application of Water Resource Accounting Information System in Taiwan
( 152 ) Is Alumni Salary an Appropriate Metric for University Marketers?
( 153 ) Participatory Processes in Planning for Self-Help Housing Provision in South Africa: Policies and Challenges
( 156 ) Employee Loyalty and Organizational Citizenship Behaviour in the Port Harcourt Area Command of the Nigeria Police Force
( 158 ) Macroeconomic Indicators and Capital Formation Growth in Nigeria: A New Evidence
( 159 ) Foreign Capital Inflows and Unemployment in Nigeria: A New Evidence from ARDL-Bounds Testing Approach
( 160 ) Electronic Banking Innovations and Selected Banks Performance in Nigeria
( 161 ) An Empirical Investigation into the Key Drivers of Economic Performance in the CEMAC Zone: A Panel Corrected Standard Errors Approach
( 162 ) Forecasting Equity Index Volatility: Empirical Evidence from Japan, UK and USA Data
( 163 ) Disaggregated Foreign Capital Inflows and Economic Growth in a Developing Economy: Empirical Evidence from Nigeria
( 164 ) The Importance of Public Administration Towards Achieving Good Governance for Positive National Development by Using SmartPLS 3
( 165 ) Assessment of Dual Carriageway for Sustainable Socio-Economic Development in Ado Ekiti, Nigeria
( 166 ) Industrialization and Economic Growth in Sub-Saharan Africa: The Role of Human Capital in Structural Transformation