Public and private investment and economic growth in Zambia: A dynamic approach

Abstract

This paper investigates the dynamic contributions of public and private investment to economic growth in Zambia during the period from 1970 to 2014. In the analysis, the paper also estimated the important indirect contribution of public investment to economic growth through its crowding effect on private investment. The study employs the newly proposed Autoregressive Distributed Lag (ARDL)-bounds testing approach in estimating the economic growth and private investment models. The empirical evidence from the study shows that private investment contributes more to economic growth than public investment in Zambia in the short run and the long run. In addition, gross public investment, infrastructural and non-infrastructural public investment were found to crowd out private investment in the short run; while non-infrastructural public investment also had a crowding out effect on private investment in the long run. The results imply that the long-run contributions of both private and public investment to economic growth in Zambia can be improved by raising the infrastructural public investment to a threshold level that stimulates private investment growth while reducing non-infrastructural public investment to the basic minimum level.