Modelling the long run determinants of private investment in Senegal

Abstract

This paper investigates the determinants of private investment in Senegal over the period of 1970-2000.It first tests the variables for unit root using two, relatively, new tests namely the Dickey-Fuller generalised least square de-trending test proposed by Elliot et al. (1996) and the Ng-Perron test following Ng and Perron (2001).The long run private investment equation is derived using the Johansen cointegration techniques (Johansen, 1988;Johansen and Juselius, 1990) and the newly developed bounds test approach proposed by Pesaran et al. (2001).In both cases, the results indicate that public investment, real income and foreign aid flows affect positively private investment, whilst the impact of credit to private sector and terms of trade is negative.