Impact of Public Debt on Investment: Case of ECGLC

Abstract

The ECGCL (Economic Community of the Great lakes countries) and its member states, like most low-income countries, have a very large public external debt and a weakness in terms of investment. Hence the question of asking “What impact can the public debt have on public and private investment.”? To carry out this study, two models were specified on the basis of the existing theoretical and empirical literature and according to the specificities of the economy of the ECGCL and its member countries. After preliminary tests (individual effects tests and Hausman specification test) which led to private investment estimation through the Folly-modified Ordinary Least Square and Ordinary Least Square ; and to public investment estimation by the Generalized Least Square, it appears from this study, that public investment positively impacts private investment and vice versa, the government-backed stock of public debt, on the other hand, has a negative impact on private investment, contrary to its positive relationship with the public investment. As for the servicing of the public debt and guaranteed by the State, it negatively influences the investment (public and private long-term).