Identifying the determinants of private sector investment: case study Cameroon

Abstract

The study identifies the determinants of private investment in Cameroon for the period 1970-2006. Within the last two and a half decades of the period under study private investment in Cameroon records serious decline in relation to the first decade of the period. Using an error correction model, the study shows empirically that in addition to the traditional determinants (growth rate of real GDP, real interest rate, inflation, exchange rate volatility etc) of investments, tax pressure (weight), public investment, external debt, credits availability to the private sector, terms of trade and deficit on current account have a significant impact on private investment in Cameroon in the long term. The study uses three similar models in the estimation of the results. On the one hand real interest rate, growth of real GDP, public investment, credit availability and terms of trade affect private investment positively. On the contrary; openness or trade policy, exchange rate volatility, external debt, tax pressure, inflation and deficits on current account have negative effects on private investment in the context of Cameroon. As policy inferences, the study recommend more effects; to reduce the level of indebtedness of the economy, to ensure the proper functioning of the Douala stock exchange market, to reduce the tax rates, time, number of administrative procedures to get business started, to industrialized the economy so as to add more value to its export products and to enhance far-sighted macro-economic policies.