1. The Role of the State in Promoting Regional Integration and Private Sector DevelopmentBy
Michael Mbate
UN Economic Commission for Africa
4th Annual Conference for Regional Integration in Africa Abidjan, Cote d’Ivoire
4th July 2013

2. Introduction
- Africa’s recent high growth is yet to translate into social-economic development
- The private sector can help accelerate economic growth and development by:
1. Increasing productivity and knowledge transfer
2. Promote an efficient allocation of resources and foster competitiveness
3. Create employment opportunities and generate income
4. Complement the public sector in the provision of public goods

3. Introduction Why private investment is still low in the region?
Quality of institutions and policies
Infrastructure deficits
Unstable macroeconomic and political environment
Market size
Research Question: What are the main determinants of private sector development?
Focus: Policy and Institutional factors
Key message: The role of the state is vital in promoting an enabling atmosphere for the private sector

4. Determinants of Private Investment
Market size induces demand for products
GDP growth signals better market prospects
FDI spurs technology transfer and integrates local economies into global markets
Infrastructure lowers the cost of doing business and promotes trade
Human capital boosts productivity, R & D and innovation
Openness promotes access to markets and positive spillovers
Macroeconomic stability promotes price stability
Credit availability boosts entrepreneurship by expanding business
Institutions design policies and frameworks

5. Model Specification
Baseline cross-country model: Where: y = private investment (% of GDP) Xit = vector of control variables (GDP growth, population, trade, exchange rate, human capital, investment, FDI, inflation) ɳi = represents unobserved country heterogeneity ԑit = represents the error term Sample: 14 West African countries; Period: 1985 to 2011

6. Identification Strategy
Estimation Technique: System Generalized Methods of Moments Justifications: 1. Autocorrelation due to yit-1 2. Control variables are endogenous 3. Time invariant country characteristics Validity of Estimates: 1. Number of instruments count 2. Hansen Test 3. Difference in Hansen Test 4. Auto-correlation Test (AR-2) Two step robust standard errors clusters within countries

7. Pair-wise Correlations

8. Fixed Effect Regressions

9. System GMM Regressions

10. Summary and Interpretation of Results
Governance indicators are highly correlated with private investment
Initial levels of private investment significantly affect a country’s future accumulation of investment
Trade is an important determinant of private investment
FDI promotes private investment (technology and imitation channel)
Exchange rate and inflation have a negative impact on the private sector

11. Policy Recommendations
It is important to design effective strategies that ensure FDI benefits are internalized to promote and benefit the private sector
There is need to promote trade ( especially intra-African trade ) and promote trade facilitation (CFTA)
It is vital to ensure macroeconomic stability through sound governance and high quality institutions
There is need for a comprehensive and coordinated regional framework to address infrastructural deficits