Does public investment increase economic growth? The objective of this paper is to investigate whether public investment leads to private investment and economic growth in Namibia, South Africa and Botswana.
The paper conducts an empirical analysis of the long-term relationship between public investment and economic growth and between public and private investment in Botswana, Namibia and South Africa. In particular, the paper analyses public investment in Namibia using disaggregated data.
The main findings of the paper include:
- an increase in public investment, private investment and public consumption in South Africa and Namibia will have a positive effect on economic growth
- private investment has a strong effect on GDP growth in Namibia and South Africa
- there is a positive relationship between private investment and public investment in Namibia and South Africa
- public and private investment are found to be complementary and there is no evidence of a strong crowding-out effect in all three countries.
The paper highlights that Botswana’s economy behaves differently from the Namibian and South African economies. Based on this, the authors suggest that public investment should be used to stimulate economic growth in Namibia and South Africa, while in the case of Botswana, fiscal policies other than public investment might be more appropriate. However, the paper cautions that different kinds of public investment have different effects on economic growth.
Turning to the disaggregated analysis of the Namibian economy, the paper indicates that:
- the transport and agricultural sectors are the largest-spending ministries in terms of public investment
- with regard to the composition of investment, more than 60% of sectoral public investment is allocated to construction and maintenance.
The paper states that this allocation of more than 50% of the total investment to construction, renovation and improvements is recommended, particularly for the transport sector since it stimulates both local and foreign investment.
In terms of the government’s priority of eradicating poverty, access to education and health care, the paper finds that public investment is directed towards achieving these objectives. Therefore, the paper recommends that public investment should be restricted to public goods that are non-excludable (meaning that once created, it is impossible to deny others access to it) and non-rivalrous (the use of the good by one person does not diminish the availability of the good for others). In some cases, the paper suggests that public investment should target the provision of basic services.