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© 2021 International Monetary Fund
WP/21/286
IMF Working Paper
African Department
Successful Transitions from Public to Private-Sector Led Growth: Lessons for Benin
Prepared by Aissatou Diallo
Authorized for distribution by Alvaro Piris Chavarri
December 2021
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
Many Sub-Saharan African (SSA) countries, like Benin, have scaled up public investment during the last decade. Such a strategy contributed to the improvement of infrastructure, but also to a build-up of debt vulnerabilities. Looking forward, the planned fiscal consolidation will result in some restraint of public spending, and, in particular, public investment. In this context, maintaining or even raising the region’s economic growth will require an offset by the private sector. The analysis draws lessons from countries that have successfully transitioned from public investment to private investment-led growth using a global sample starting in the mid-1980s. These lessons highlight policies that have been crucial in fostering a rebound of private investment in the wake of a contraction of public investment. The analytical framework proposed by Hausman, Rodrik and Velasco (2005) is used to identify and classify such policies. Finally, the paper analyses how the identified policies could help Benin achieving a smooth transition from public to private sector-led growth.
JEL Classification Numbers: E2, E4, E6, F4, H2, H3, H5,H6
Keywords: Private and public investment, growth, transition, fiscal consolidation, lessons
Author’s E-Mail Address: adiallo2@imf.org
Contents
ABSTRACT
I. INTRODUCTION
II. THE CONTEXT OF BENIN
III. LITERATURE REVIEW
IV. SELECTION OF SUCCESSFUL INVESTMENT TRANSITIONS
A. Definition and selection of ‘’successful transition’’ episodes
B. Results of the episodes’ selection
C. Robustness checks
D. Comparison between Benin and countries with ‘’successful transition’’ Episodes
E. Estimation of Benin’s potential gains in the case of a successful transition
V. POLICIES IMPLEMENTED IN SUCCESSFUL TRANSITIONS
A. Typology of Policies Used in the Paper
B. Main Lessons
VI. CONCLUSION
FIGURES
1. Evolution of debt and public investment
2. Distribution of Annual Changes in Public Investment
3. Typology of Policies Supporting Private Investment
TABLES
1. Summary of Criteria Used in the Expansionary Fiscal Consolidation Literature
2. Episodes of Successful Transitions from Public to Private Investment Led Growth
3. Selection of Episodes Using Alternative Criteria
4. Policies Implemented during the Episodes
References
ANNEXES
I. Distribution of Annual Changes in Public and Private Investment
II. Robustness Analysis
III. Ratios of private investment to GDP before, during and after the episodes of successful transitions
IV. Econometric Estimate of the public versus private investment coefficient