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Specification of Investment Functions in Sub-Saharan Africa

ACCUMULATION RATE ADVERSE EFFECT AGGREGATE DEMAND AGGREGATE LEVEL AGRICULTURE ARBITRAGE BUDGET CONSTRAINTS CAPITAL ACCUMULATION CAPITAL FLOWS CAPITAL FORMATION CAPITAL INVESTMENT CAPITAL MARKET CAPITAL MARKETS CAPITAL STOCK CONSTANT RATE CONSTANT RETURNS CONSTANT RETURNS TO SCALE COST FUNCTIONS COST OF CAPITAL CREDIT RATIONING DEBT DEBT BURDEN DEPRECIATION DETERMINANTS OF GROWTH DEVELOPMENT ECONOMICS DISTRIBUTION OF INCOME DOMESTIC FIXED INVESTMENT ECONOMIC GROWTH ECONOMIC SECTORS EXCHANGE RATE VOLATILITY EXOGENOUS VARIABLES EXPECTED VALUE EXPENDITURES EXPORTS EXTERNAL DEBT FINANCIAL INSTRUMENTS FINANCIAL MARKETS FIXED CAPITAL FOREIGN BORROWINGS FOREIGN RESERVES GDP GDP PER CAPITA GROWTH MODELS GROWTH PROCESS GROWTH RATE GROWTH RATES GROWTH RELATIONSHIP INCOME INCOME DIFFERENCES INCOME GAPS INCOME GROUPS INCOME LEVELS INFLATION RATE INTEREST RATE INTERMEDIATE GOODS INVENTORY INVESTMENT BEHAVIOR INVESTMENT DECISION INVESTMENT DECISIONS INVESTMENT EXPENDITURES INVESTMENT FUNCTIONS INVESTMENT PROJECTS INVESTMENT RATE INVESTMENT RATES INVESTMENT SPENDING LIVING STANDARDS LOW-INCOME COUNTRIES LOW-INCOME GROUPS M1 M2 MACROECONOMIC CONDITIONS MACROECONOMIC SHOCKS MACROECONOMIC STABILITY MARKET IMPERFECTIONS MIDDLE INCOME COUNTRIES NEOCLASSICAL MODELS NEOCLASSICAL THEORY NONTRADABLE GOODS PER CAPITA INCOME PORTFOLIO POSITIVE EXTERNALITIES PRICE OF OUTPUT PRIVATE CAPITAL PRIVATE INVESTMENT PRIVATE INVESTMENTS PRIVATE INVESTORS PRIVATE SECTOR PRODUCTION FUNCTION PRODUCTION PROCESS PROFITABILITY PUBLIC INVESTMENT PUBLIC INVESTMENTS PUBLIC SECTOR REAL INTEREST RATE REAL INTEREST RATES RETURNS TO SCALE RISK AVERSE RISK AVERSION SAVING RATE STOCKS STRUCTURAL REFORMS SUB-SAHARAN AFRICA TAX BASE TECHNOLOGICAL CONTENT TOTAL FACTOR PRODUCTIVITY TRANSACTION COSTS WORKING CAPITAL
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World Bank, Washington, DC
Africa
2012-06-06T15:48:20Z | 2012-06-06T15:48:20Z | 2007-03

It is a well-known fact that one of the most important determinants of growth is private investment. But in the developing country context of widespread poverty, the effects of initial conditions on the process of capital accumulation have seldom been investigated. This paper highlights heterogeneity in the process of capital accumulation across different countries in Sub-Saharan Africa, and derives a formal specification of investment functions in the primary, industry, and service sectors in the region using a variation of the combined Tobin's Q Theory and the neoclassical models of investment. The results highlight a more rapid accumulation of capital in the relatively high income subpanel and a widening public-private capital accumulation gap. A functional specification points to the significance of aggregate profitability shocks, the financing cost of investment, and public capital stock in estimating the growth rate of private capital accumulation. These results are supported empirically, as highlighted by the relatively small absolute deviation between actual and predicted value distributions.

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