Infrastructure development and external financing nexus in Sub-Saharan Africa: Panel VECM analysis
Infrastructure development and external financing nexus in Sub-Saharan Africa: Panel VECM analysis

Summary/Abstract: Research background: It is evident that relying solely on domestic financing cannot bridge the infrastructure gap in the Sub-Saharan African (SSA) region. Therefore, exploring alternative sources of financing becomes crucial to complement domestic efforts and address the infrastructure needs effectively.Purpose: This study investigates the relationship between infrastructure development and external financing factors (foreign direct investment – FDI, private participation in infrastructure – PPI, and official development assistance – ODA) by considering the short- and long-run equilibrium and their causal direction.Research methodology: These objectives are achieved by employing the panel vector error correction mechanism (PVECM ), impulse response functions (IRF), variance decomposition analysis (VDCs), and VAR causality on a dataset covering 43 SSA countries from 2000 to 2021.Results: The results reveal the presence of feedback causal relationships between infrastructure development and external financing factors, and PVECM results demonstrate that only private participation in infrastructure has a positive influence on infrastructure development both in the long and short-run, while ODA and FDI only influence infrastructure development in the long- run.Novelty: The current study contributes to the existing literature by examining the impact of external financing factors on infrastructure development, with a specific focus on SSA, by considering the three major external financing factors (PPI, FDI, and ODA) as the determinants of infrastructure.

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