Public and private investment and economic growth in Zimbabwe: An empirical test

Abstract

This study performs an examination on the impact of public and private investment on economic growth in Zimbabwe from 1970 to 2014. In addition to estimating the economic growth model, the study also estimates the crowding effect of public investment on private investment. The study utilised the newly developed ARDL-bounds testing approach with better small sample properties than the traditional cointegration techniques. The results show that while public investment has higher short-run impact on economic growth than private investment, in the long run, private investment contributed more to economic growth than public investment. In addition, the results reported the crowding-in effect on private investment of infrastructural public investment in the long run and gross public investment in the short run. Furthermore, the results found the crowding-out effect on private investment of gross public investment in the long run and non-infrastructural public investment in the short run. The results suggest that the short-run and long-run contribution to economic growth of private investment in Zimbabwe can be improved by cutting back on non-infrastructural public investment to necessary minimum level while stimulating the growth in infrastructural public investment.