Public investment and economic growth in ECOWAS countries: Does governance Matter?

Abstract

The ECOWAS countries have been facing weak economic performance in recent decades. While the role of investment as an engine of growth is undeniable, the effect of public investment remains less clear. The role of the quality of governance in the effectiveness of public investment is increasingly recognized. The objective of this study is twofold. On the one hand, we analyze the effect of public investment on economic growth. On the other hand, we analyze the role of governance in the relationship between public investment and growth in the ECOWAS countries. To this end, we use an error correction model (ECM) on panel data for the period 1996–2016. We privileged the Pooled Mean Group (PMG) estimator in this study. Our results show that public investment has a positive and significant effect on economic growth in ECOWAS countries in the long-term. Moreover, governance improves the positive effect of public investment on economic growth. Particularly, political stability and rule of law represent institutional dimensions, which amplify the positive effect of public investment on growth in these countries. Thus, the improvement of governance quality and increasing public investment are complementary to foster economic growth. In addition, the promotion of private investment and the attractiveness of foreign direct investment should accompany any governance reform and increase in public investment to promote economic growth.