Composition effects of public investment on private investment in WAEMU

Abstract

This paper examines the extent to which private investment is affected by public investment, depending on whether the latter is financed by external or internal resources, in the West African Economic and Monetary Union (WAEMU). Using a panel data model, estimated according to the procedure of Driscoll and Kraay (1998), the study concludes that the crowding-out effect occurs when public investment is financed from external resources. When public investment is financed from internal resources, it is the crowding-in effect that expresses itself, supporting the implementation of the golden rule for public finances. In addition, foreign direct investment appears to be one of the determinants of private investment.