Sanogo, Issa and Gyengani, Zakaria (2008): Private investment in guinea, does macro-instability matter? A comparative analysis. Published in: European Journal of Scientific Research , Vol. 19, No. 4 (4. February 2008): pp. 758-783.
Download (476kB) | Preview
This paper examines empirically the link between macro-instability and private investment rate in Guinea, in comparison with WAEMU countries . Notwithstanding the caution imposed by data and methodological limitations in interpreting the results, the paper shows that macroeconomic instability is, in general, higher in Guinea than WAEMU countries. Consequently, macroeconomic uncertainties are cause of concern. Using a panel data approach, the findings suggest that the negative effects of relative price volatility (mainly inflation, real effective exchange rates) expected in theory, do not occur when small deviations are combined with competitiveness, resulting from a declining real effective exchange rate. In addition, the positive effect of foreign exchange reserves on the private investment rate supports the view that the availability of foreign exchange reserves is critical in a fixed exchange rate regime as that of WAEMU, as well as in an imperfect floating exchange rate regime as that of Guinea. While the panel data approach shows no evidence of negative impact of macroeconomic uncertainties, it suggests further analysis to explore the robustness of this result. A time series approach is carried out for Guinea, with regard to this purpose. As mentioned above, Guinea registers higher level of macroeconomic instability, compared to WAEMU countries. Using a single error correction model, the counter-intuitive impact of macroeconomic instability variables (measured by the real effective exchange rate, inflation rate and the terms of trade) persists. Given the dominant share of the mining sector in the private investment figures, the findings may be misleading as this sector may be protected from the wrong market signals resulting from the increasing macro-instability. However, capturing such an ‘enclave-effect’ is unfortunately limited by the lack of disaggregated investment data by sector. Finally, the results indicate a negative (indirect) impact of macroeconomic instability (measured by the real lending rate and the flow of credit to the economy) on the private sector investment. They suggest additional efforts to improve the overall macroeconomic context and especially, an in-depth openness of the financial sector, to diversify credit instruments to the private sector in Guinea.
|Item Type:||MPRA Paper|
|Original Title:||Private investment in guinea, does macro-instability matter? A comparative analysis|
|Keywords:||Guinea, Macro-instability, Inflation, Private investment|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models
B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes
|Depositing User:||Issa Sanogo|
|Date Deposited:||17. Nov 2008 00:32|
|Last Modified:||25. Apr 2015 00:20|
Abraham-Frois G. (1991), Dynamique Economique, Seventh Edition, Paris, Précis-Dalloz.
Agénor, P.-R. (2000), “The Economics of Adjustment and Growth”, Academic Press, http://www1.worldbank.org/wbiep/macro-program/agenor/agenor_lectures.htm
Agénor, P.-R. and P. J. Montiel (1999), Development Macroeconomics, Second Edition, Princeton, New Jersey, Princeton University Press.
Aizenman, J. and Marion, N. (1999), Volatility and Investment: Interpreting Evidence from Developing Countries”, Hanover, NH, Dartmouth College.
Blavy, R. (2004), “Inflation and Monetary Pass-Trough in Guinea,” Working Paper, n°03/223, IMF, December.
Bogetic Z. and I. Sanogo (2005), “Infrastructure, Productivity and Urban Dynamics in Côte d’Ivoire: An Empirical Analysis and Policy Implications”, Working Paper, Africa Series 86, World Bank.
Buffie E. F. (1986), “Devaluation, Investment and Growth in LDCs”, Journal of Development Economics, n°20, pp. 361-79, March.
Branson W. H. (1986), “Stabilization, Stagflation and Investment Incentives: The Case of Kenya 1979-80”, In Economic Adjustment and Exchange Rates in Developing Countries, Edited by Edwards S. and L. Ahamed, Chicago II, Chicago University Press.
Caballero, R. (1999), Aggregate Investment, Handbook of Macroeconomics, Taylor, J.B. and M. Woodford, eds., NorthHolland.
Campbell B. K. (2004), “Regulating Mining in Africa, For Whose Benefit?”, Discussion Paper n°26, GRAMA, University of Québec in Montréal (UQAM), Canada, June.
Devarajan S., V. Swaroop and H.-F. Zou (1995), “The Composition of Public Expenditure and Economic Growth”, Policy Research Working Paper, The World Bank, Washington D.C.
Dixit A. and R. S. Pindyck (1994), Investment Under Uncertainty, Princeton, New Jersey, Princeton University Press.
Doumbouya S. F. (2004), “Incidence du déficit budgétaire sur les agrégats macroéconomiques en Guinée : Keynes is back”, Document de Travail, Version provisoire, Conakry, CEPEC.
Easterly W. and K. Schmidt-Hebbel (1991), “The macroeconomics of Public Sector Deficits: A Synthesis”, Policy Research Working Paper, WPS775, The World Bank, Washington D.C.
Hausman J. A. and M. E. Taylor (1981), “Panel Data and Unobservable Individual Effects”, Econometrica, vol.49, n°6, November
Huntington, S. (1968), Political Order in Changing Societies, New Haven, CT, Yale University Press.
Hadjimichael, M. and D. Ghura (1995), “Public Policies and Private Savings and Investment in Sub-Saharan Africa: an Empirical Investigation”, IMF Working Paper, WP/95/19.
IMF (2004), “Sub-Saharan Africa Regional Economic Outlook”, Washington, D.C., Africa Department.
Leff, N. (1964), “Economic Development through Bureaucratic Corruption”, American Behavioral Scientist 8(3), November, pp. 8-14.
Mauro, P. (1993), “Corruption, Country Risk and Growth”, Unpublished Paper, Harvard University, November.
Mauro, P. (1995), “Corruption and Growth,” The Quarterly Journal of Economics, Vol. 110, n°3, pp.681-712, The MIT Press.
Montiel P. and L. Serven (2004), “Macroeconomic Stability in Developing Countries: How Much Is Enough?,” World Bank Policy Research Paper 3456, November.
North, D. (1990), Institutions, Institutional Change and Economic Performance, Cambridge, Cambridge University Press.
OPIP (2001), Rapport d’évaluation de l’impact du code des investissements (1998, 1999, 2000), Conakry, Ministère du Commerce, de l’Industrie et des Petites et Moyennes Entreprises.
Oshikoya, T. W. (1994), “Macroeconomic Determinants of Domestic Private Investment in Africa: An Empirical Analysis”, Economic Development and Cultural Change, 42(3), pp.573-96.
Pattillo, C. (1997), Investment, Uncertainty, and Irreversibility in Ghana, Working Paper, n°97/169, IMF, December.
Pindyck, R. (1988), “Irreversible Investment, Capacity Choice and the Value of the Firm”, American Economic Review, vol. 48, n°3.
Rose-Ackerman, S. (1978), Corruption: A Study in Political Economy, New York, Academic Press.
Serven, L. (1998), “Macroeconomic Uncertainty and Private Investment in LDCs : An Empirical Investigation”, Working Paper n°2035, Washington D.C., World Bank.
Serven, L. (2002), “Real Exchange Rate Uncertainty and Private Investment in Developing Countries”, Review of Economics and Statistics, forthcoming.
Shleifer, A. and R. W. Vishny (1993), “Corruption”, Quarterly Journal of Economics, 108 (3), pp.599-617.
Villieu, P. (2000), Macroéconomie : l’investissement, Paris, La Découverte (Repères).
Word Bank (1994), World Development Report, Washington, D.C.
Word Bank (2004), Doing Business in 2005, Removing Obstacles to Growth, Washington, D.C, co-published with IFC and Oxford University Press. http://rru.worldbank.org/DoingBusiness