A Comparative analysis of the determinants and behavior of investment demand between South Africa and Zimbabwe

Abstract

The study investigates the determinants of private investment in South Africa and Zimbabwe employing annual data over the period 1980-2006. The focus is on Gross Domestic Product (GDP), Government Debt, Inflation, and interest rate policies. The data is subjected to stationarity and co integration tests, applied Vector Autoregressive and error correction models to estimate long- and short-run coefficients. The results suggest that GDP for both countries has a positive effect on private investment over the period of study. Government debt has a crowding out effect on private investment for Zimbabwe, for South Africa the effect is insignificant. Inflation for both countries negatively affects private investment. An interesting results supported data for developing countries is the positive relationship between interest rates and private investment.