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LANIRAN TEMITOPE JOSEPH
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- Introduction and Problem Statement
- Theoretical Background
- Methodology and Scope
- Model Estimation
- Empirical Findings
- Conclusion
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- Importance Of investment cannot be
overemphasized, however, the exact extent to
which investment is crucial remains a subject of
speculation.
- This study aims at understanding the
behaviour of investment in different economic
climates.
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Basic growth models of Solow(1956) and Swan
(1956) predicted investment as fundamental for
economic growth
“Countries that grow fast are countries that
invest a substantial fraction of their GDP and
countries that fail to grow are countries that fail
to invest" (Sala-i-Martin,2002).
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- A country each was selected from the three
strata of the World Bank ease of doing
business.
- Gross capital formation = investment
GDP per capita = economic growth
-how long it takes in starting a business
 -dealing with construction permit
 -availability of electricity
 -ease of registering property
 -ease of getting credit
 -availability of protection for investors
 - tax paying
 -ease of inter border trade
 -contract enforcement
 - Insolvency resolvency.
Source: World Bank (2012)
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The formulation below describes in a linear form the original
work of Solow (1956)
Y=A f (K, L) ----------------------------------------------------------------- 1
Yt = AtKαt Lt1−α ------------------------------------- 0 < α < 1------------- 2
The Solow growth model posits that economic growth (y) is a
function of investment (k).
Solow argued that investment preceded economic growth.
Thus, Y = f (K) -------------------------------------------------------------- 3
Yt = AtKt--------------------------------------(Ak model) ---------------- 4
For the purpose of this study, the equation above is modified to
derive the one below:
Y = βo + β1K + U---------------------------------- α = 1------------------- 5
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CK Chad Gross capital formation (% of GDP)
SK Sweden Gross capital formation (% of GDP)
ZK Zambia Gross capital formation (% of GDP)
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10
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Where: LCK = Investment = Gross capital
formation in Chad ;
LCY=Economic growth = GDP per capita in
Chad
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Where: LZK = Investment = Gross capital
formation in Zambia ;
LZY= Economic growth = GDP per capita in
Zambia
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Where: LSK = Investment = Gross capital
formation in Sweden ;
LSY= Economic growth = GDP per capita in
Sweden
LCY
LCK
LCY
1.0000
0.428949
LCK
0.428949
1.0000
LZY
LZK
LZY
1.0000
0.683863
LZK
0.683863
1.0000
LSY
LSK
LSY
1.0000
0.810782
LSK
0.810782
1.0000
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Where: LCK = Investment = Gross capital
formation in Chad ;
LCY=Economic growth = GDP per capita in Chad
LZK = Investment = Gross capital formation in
Zambia ;
LZY= Economic growth = GDP per capita in
Zambia
LSK = Investment = Gross capital formation in
Sweden ;
LSY= Economic growth = GDP per capita in
Sweden
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The correlation matrix reveal a positive
relationship between investment and
economic growth for all three countries.
It also revealed a stronger relationship where
economic environment is better.
It then suggests that the better the economic
climate the stronger the relationship between
investment and economic growth.
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The empirical analysis using an OLS regression
model revealed the relationship between
investment and economic growth as stated
below for each of the three countries, holding
other variables constant.
Chad LCY = 4.767420+ 0.165319LCK + U
Zambia LZY = 5.165192+ 0.182688LZK + U
Sweden LSY = 3.820266+ 0.746614LSK + U
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Chad: a one per cent increase in the investment
level will yield a sixteen per cent increase in
economic growth.
Zambia: a one per cent increase in the
investment level will yield a eighteen per cent
increase in economic growth.
Sweden: a one per cent increase in the
investment level will yield a seventy five per
cent increase in economic growth.
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The empirical results suggested that, the better
economic and business environment, the better
the yield of investment in an economy. This
then suggests that the economic climate of an
economy is crucial and fundamental for the
yield magnitude of investment to economic
growth
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Thank you.