Abstract
This paper assesses firstly the impact of the level and the composition of public expenditures on growth and secondly the link between public investment and private investment in Togo. For this purpose, a neoclassical growth model and a private investment model were estimated using Two-Stage Least Squares. The findings highlight that during the period 1980-2013, the composition of public expenditures, contrarily to the level, had significant effect on economic growth. In fact, the public consumption had a negative impact whereas public investment had a positive impact on growth. Moreover, the study finds out that increasing public expenditures involves crowding-out effect on private investment. In the light of the results, the paper invites the Togolese government to change the composition of public expenditures by giving priority to the investment with careful arbitrage between private and public expenditures.
Highlights
Over the past five decades, macroeconomic performance of Togo was among the worst in sub-Saharan Africa
Should the Togolese government increase the current level of public expenditure or reduce it? Should the government change the composition of public expenditures in order to better impact growth? What is the impact of increasing public investment on private investment?
In column (2), the total public expenditures are split into public consumption and public investment
Summary
Over the past five decades, macroeconomic performance of Togo was among the worst in sub-Saharan Africa. After independence, Togo foreshadowed the hope of a booming economy with an annual average growth rate of 4.5 percent between 1960 and 1973. From 1974, with the falling rate of real GDP growth, the economic situation has considerably deteriorated and the country has elapsed into an economic crisis beginning in 1980. Restructuring was aimed to restore production efficiency by reducing distortions that hinder it. Stabilization, in turn, would mean reducing aggregate demand to a level compatible with the level of local production and sustainable debt. This aim should be achieved through appropriate monetary and fiscal policies and adjustment of the size of the government
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