TITLE:
Debt, Corruption and Investment in East Africa: A Panel ARDL Analysis
AUTHORS:
Millicent Bridgit Aswata, John Bosco Nnyanzi, John Mayanja Bbale
KEYWORDS:
Public Debt, Private Domestic Investment, Foreign Direct Investment, Corruption, ARDL
JOURNAL NAME:
Modern Economy,
Vol.9 No.12,
December
10,
2018
ABSTRACT: We set out to investigate the relationship between
public debt and private investment using a panel of four countries in East
Africa for the period 1992-2015. The results from the Autoregressive
Distributed Lag Models show that Public Debt (PD) crowds out both Private Domestic
Investment (PDI) and Foreign Direct
Investment (FDI) in the long run, although the magnitude of the impact is
greater for the former category. We fail to find evidence of any short run
significant relationship in either case. However, the importance of
institutional quality in enhancing relationship in question is unquestionably
confirmed in the data. The effect of PD on either PDI or FDI is observed to change when the corruption control improves. The
immediate recommendation is the need to design fiscal policies to tame the
growing debt that appears to discourage private investment in the region. A
proper debt management system coupled with clear policies to improve the
institutional quality would likely boost private investment in East Africa. The
anti-corruption measures already in place should be enhanced to create a
conducive investment climate for the private sector to thrive.