Ibadan Journal of the Social Sciences
Volume 5, No. 2, 2007
Pages 107-121

DOI: 10.36108/ijss/7002.50.0230

Macroeconomic Factors and Private Investment: An empirical analysis for ECOWAS and its sub-groups

Adeolu O. Adewuyi

Department of Economics, Faculty of the Social Sciences
University of Ibadan

Godwin Akpokodje

Economic Development Department
National Institute of Social & Economic Research (NISER} Ibadan


This study examines the effect of macroeconomic factors on private investment in the ECOWAS sub-region during the period 1986-2004. Descriptive analysis revealed that private investment is low in most ECOWAS countries and this has affected their output in terns of low growth and Gross Domestic Product (GDP). Suggesting that the low living standard in the ECOWAS sub-region can be attributed to the relatively poor private investment. Average private investment in the entire ECOWAS has not exceeded 10.0 per cent over a period time. Showing that all the unilateral and collaborative efforts on promoting private investment had little or no impact. It employs panel data technique of analysis, covering 15 ECOWAS countries. Empirical analyses were carried out at both aggregate and disaggregate levels by sub-grouping the countries into the l’Union Economique et Monétaire Ouest Africaine- UEMOA or WAEMU (West African Economic and Monetary Union} (Francophone- ECOWAS countries) and non- UEMOA (Anglophone ECOWAS countries). The problem of endogeneity during model specification was addressed by constructing an alternative GMM estimator that combined the level and first difference specifications using lagged levels of variables as instruments. Econometrics analysis in this paper revealed that the poor performance of ECOWAS countries, in terms of private investment since the mid-1980s, stemmed partly from the differences in the policies pursued by individual countries or region sub-groups, particularly in the areas of monetary interest rate policy and its deteriorating infrastructures. Inappropriate macroeconomic policies, especially fiscal and monetary (i.2. exchange rate and public expenditure policy) have also discouraged private investment in the sub region. However, productive capacity and market factors have helped to boost investment. In conclusion, macroeconomic stability, reduction of external debts, appropriate exchange and interest rate policies and increased government investment, particularly on infrastructure, would play a major role in stimulating private investment in the sub-region, When all these are done, then there is need for improved service delivery at an affordable rate on the part of the private investors so as to improve welfare of the people.
Keywords: Macroeconomic factors. private investment, ECOWAS, UEMOA and non-UEMOA, GMM estimator


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