DEFICIT FINANCING AND PRIVATE SECTOR INVESTMENT IN WESTERN AFRICA: CROWDING-OUT OR CROWDING-IN EFFECTS

Résumé fourni par la source

Rising fiscal deficits in Western Africa have intensified concerns over their effects on private investment, yet the direction of this relationship remains theoretically and empirically ambiguous. This study examines whether deficit financing crowds out or crowds in private sector investment, and under what structural conditions. Using a balanced panel of ECOWAS countries over 2000–2023, the analysis employs a dynamic specification estimated via System GMM, complemented by threshold and panel ARDL techniques. The findings reveal a statistically significant crowding-out effect: a one-percentage-point increase in deficits reduces private investment by about 0.18 percentage points of GDP. However, this effect is conditional, financial development and institutional quality mitigate and can reverse it beyond critical thresholds. By explicitly modelling nonlinearities and structural moderators, the study advances identification in the fiscal–investment nexus. The results highlight a central policy trade-off: fiscal expansion can support growth only when anchored in strong financial systems, credible institutions, and sustainable borrowing frameworks.

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