Economic freedom and private domestic investment in sub-Saharan Africa

Economic freedom and private domestic investment in sub-Saharan Africa | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Economic freedom and private domestic investment in sub-Saharan Africa Ibrahima Dia, Idrissa Ouedraogo This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-5382760/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This study investigates the effect of economic freedom on private domestic investment in Sub-Saharan Africa. Unlike the existing literature, it specifically focuses on the SSA region and considers the effect of the five components of the Fraser Institute's Index of Economic Freedom on private domestic investment. To this end, we use a panel of 41 SSA countries over the period 2000–2021 using the system GMM estimation method. The results show that economic freedom favors private domestic investment through the size of government, the legal system and property rights, as well as the regulation of the credit, labor and business markets. Conversely, the freedom to trade internationally has a negative effect. These results imply that SSA countries should enhance the size and quality of public investments, strengthen their legal frameworks, ease restrictions on capital flows and tariff barriers, and create a favorable regulatory environment for businesses to stimulate private investment. JEL classification : C82, E22, O43, O55, P16 Economic freedom private domestic investment sub-Saharan Africa Figures Figure 1 Figure 2 Figure 3 1 Introduction Investment is widely recognized as the engine of economic growth, as outlined in both neoclassical and endogenous growth theories (Solow, 1956 ; Barro, 1991 ). By enhancing the productive capacity through the accumulation of physical and human capital, and by driving technological advancements through research and development and innovation, investment significantly contributes to economic growth. In developing Asian economies, private investment has been particularly vital in fostering this growth (Jongwanich and Kohpaiboon, 2008 ). Sub-Saharan Africa (SSA) has the lowest average ratio of private investment to GDP among all regions, at just 2%. Between 2010 and 2016, this ratio averaged 15% of GDP, compared to 22% in emerging Asia, 18% in Europe, 17% in Latin America, and 16% in the Middle East and North Africa. Notably, investment in SSA has declined more rapidly than in other emerging markets since 2015, experiencing an average drop of 4% in both 2015 and 2016. Within the region, the low level of private investment is particularly striking: from 2010 to 2016, the ratio was 14% in oil-producing countries, 17% in other resource-rich nations, and 15% in resource-poor countries (IMF, 2018 ). The African Development Bank highlights that the private sector plays a critical role in the economy, accounting for 90% of jobs, 70% of gross domestic product, and 70% of total investments. Despite SSA's underperformance, the IMF report (2020) indicates that achieving sustainable and inclusive growth will necessitate an annual investment of $ 420 billion by 2030, a goal that cannot be met without significant private sector involvement. Additionally, the report highlights that SSA countries experiencing sustained increases in private investment are those that have established macroeconomic stability and focused on building strong institutions. Over the past three decades, institutions have become crucial factors in determining growth and investment (North, 1990 ; Rodrik, 2000 ; Acemoglu et al., 2012 ). The literature has identified various types of institutions that can directly affect investment, including economic institutions that guarantee the protection of property rights, open markets and so on. In this context, economic freedom has emerged as a key indicator of institutional quality, linked to enhanced economic performance, especially regarding investment. Economic freedom measures the degree to which economic institutions and policies encourage voluntary exchange, freedom of choice, protection of property rights and freedom of competition. The literature suggests that countries with higher levels of economic freedom tend to experience significantly better economic performance. This improvement is attributed to an economically free environment, which enhances productivity, fosters investment in human and physical capital, and creates more opportunities for entrepreneurial activity (de Haan and Sturm, 2000 ; Justesen, 2008 ). For example, much research has shown that economic freedom promotes economic growth (Doucouliagos and Ulubasoglu2006; Azman-Saini et al., 2010 ; Farhadi et al., 2015 ; Malanski and Pvoa, 2021), FDI in sub-Saharan Africa (Dia and Atangana Ondoa, 2023 ) and entrepreneurship (BjøBjørnskov and Foss, 2008 ). Other researchers have found that economic freedom has a direct effect on growth, and an indirect one through investment (Dawson, 2003 ). Based on the relation between economic freedom and investment, Gwartney et al ( 2006 ) isolated the independent effect of economic freedom on growth through its effect on the level of private investment (% of GDP) and the productivity of investment, using a sample of 94 countries over the period 1980–2000. They used the recursive method to separate the influence of economic freedom based on 1980 levels, as well as changes during the 1980s and 1990s. They found that economic freedom coefficients have a positive effect on the private investment ratio (as a percentage of GDP). Similarly, Justesen ( 2008 ) sought to determine the direction of causality between economic freedom and its five components, on the one hand, and economic growth and investment, on the other. He performed the Granger causality test using a fixed-effect model on a five-year panel of 76 countries over the period 1970–1999. He demonstrates that economic freedom and its components have a significant positive causal effect on investment. The aim of this research is to investigate the effect of economic freedom on private domestic investment across a sample of 41 sub-Saharan African countries from 2000 to 2021. It differs from the existing literature in three ways. First, it employs a dynamic panel approach that addresses endogeneity issues and considers the dynamic effects of private domestic investment through the generalized method of moments (GMM) system. Second, unlike Justesen ( 2008 ) and Gwartney et al. ( 2006 ), who use data in five- or ten-year intervals, this study uses annual data over the research period. The private investment ratio, measured by the private sector's share of gross fixed capital formation (GFCF), is assessed annually, making the use of annual data more pertinent. Finally, this study focuses exclusively on SSA, a region that has not yet been the subject of empirical research on this specific topic. The remainder of the paper is structured as follows: Section 2 provides a review of the literature on the effects of economic freedom on private domestic investment. Section 3 presents the methodology and data. Section 4 shows the empirical results and discussion, and section 5 concludes. 2 Literature review In this section, we review the theoretical debates regarding the relationship between the five components of the Index of Economic Freedom and private domestic investment. Each component influences private domestic investment in distinct ways.. They are: (1) size of government, (2) legal system and property rights, (3) sound money, (4) freedom to trade with the rest of the world and (5) regulation of business, labor and credit markets. 2.1 Size of government and private investment The effect of the size of government (via public spending and taxes) on private investment has been a longstanding subject of debate. Two primary opposing theories emerge in this discourse. On one side, the theoretical literature suggests that public investment may crowd out private investment, either by increasing public spending without sufficient tax revenue or through high taxation (Buiter, 1977 ; Easterly and Rebelo, 1993 ). Conversely, the literature arguing that public investment can encourage private investment, producing a crowding in effect on the economy over the long term. Public spending on infrastructure or the provision of public goods and services fosters a stable macroeconomic environment, which may attract private investment by reducing investment costs and enhancing the productivity of private capital (Barro, 1990 ; Bahal et al., 2018 ). 2.2 Legal system, property rights and private investment North ( 1990 ) argues that good institutions that guarantee property rights reduce the transaction, control and contract enforcement costs that affect economic activity. According to Acemoglu et al ( 2005 ), in the absence of property rights, individuals have no incentive to invest in physical or human capital, or to adopt more efficient technologies. In environments where property rights are weakly protected, politicians or powerful groups are more likely to expropriate productive assets (Ojah et al., 2010 ). Similarly, Gwartney et al ( 2006 ) emphasize that investors are reluctant to commit capital where property rights are insecure, fearing that the returns on their investments may be appropriated by others. Furthermore, compliance with and enforcement of contracts is necessary to attract private investors. Aboal et al, ( 2014 ) explain that poor contract enforcement can impact investment decisions on two levels. First, it can directly increase uncertainty around investment projects, thereby influencing investor decisions by raising project costs and reducing expected returns. Second, it can indirectly affect investors’ decisions or abilities, potentially leading them to choose less efficient technologies, limit the development of specific assets dependent on contracts, or exacerbate the adverse effects of weak infrastructure or regulatory environments. 2.3 Sound money and private investment The relationship between inflation and private investment remains a topic of debate. On one hand, inflation-related uncertainty can have a positive effect on private investment decisions among risk-neutral investors (Hartman, 1972 ; Abel, 1983 ). However, Caballero ( 1991 ) moderates this view by asserting that the impact of uncertainty on investment depends entirely on market structure. On the other hand, uncertainty is often viewed as an indicator of macroeconomic instability, which can negatively impact private investment (Oshikoya, 1994 ). According to real options theory, firms are likely to delay irreversible investments in uncertain economic conditions to gather additional information (Dixit and Pindyck, 1994 ). The latter add that, once the investment is made, firms may incur high costs to repurpose it for other projects. Nevertheless, Keller ( 2004 ) argues that in the presence of irreversibility and economic uncertainty, firms may find it preferable to proceed with investments only if expected returns marginally exceed investment costs. 2.4 Freedom to trade and private investment The effects of trade liberalization have been the subject of considerable debate. Gwartney ( 2009 ) posits that reduced transport and communication costs, alongside trade liberalization, facilitate production even in remote areas globally, thereby encouraging investment and entrepreneurship by allowing greater flexibility in production location. Bhagwati ( 2005 ) also advocates for increased trade liberalization but contends that developing countries should be compensated for the loss of tariff revenue, and financial support should be provided to help producers—particularly smaller ones—transition to competitive exporting. In contrast, Stiglitz ( 2002 ) argues that trade liberalization can hinder growth by preventing countries, such as those in sub-Saharan Africa, from pursuing industrial development strategies, thus limiting opportunities for knowledge accumulation and productivity enhancement. Similarly, Greenwald and Stiglitz ( 2006 ) assert that trade restrictions may be necessary to bridge the technological knowledge gap between developed and emerging economies by fostering the growth of a modern industrial sector. 2.5 Regulation and private investment Economic regulation refers to government intervention or expansion in economic affairs, including business activities, labor markets, and credit regulation, aimed either at correcting or substituting market functions. The literature suggests that excessive regulation can negatively impact business activities. Restrictive regulations may foster corruption by positioning officials to dispense favors or impose costs on businesses (Gwartney, 2009 ). Bjørnskov and Foss ( 2008 ) observe that while regulations can provide support to entrepreneurs by establishing clear rules, overly restrictive regulations may impose burdens, especially on start-ups with high growth potential, by inflating start-up costs. The development of the financial system through financial liberalization can improve information asymmetry effects and reduce transaction costs, influencing decisions related to savings and investment (McKinnon, 1973 ; Greenwood and Smith, 1997 ). Financial instruments help mitigate information asymmetry, enforce rules, and lower transaction costs, ultimately impacting savings rates, investment choices, technological advancement, and stable growth rates (Misati and Nyamongo, 2011 ). However, Stiglitz ( 2002 ) declares that credit market deregulation may destabilize developing economies by enabling speculative capital flows. He advocates for banking regulations, such as restrictions on lending for real estate speculation and limits on bank asset growth rates, to ensure that market liberalization does not deprive small businesses of the financing required for their investment projects. 3 Methodology and data The choice of study period is dictated by the annual availability of data from 2000 to 2021. Annual data are available from 2000 onwards, since before this date data were produced every five years, and 2021 corresponds to the last year available in the database. Similarly, given the problems of data availability for some countries, the sample size includes 41 countries (Table A2 , list of countries in appendix ). Empirical model specification The relationship between the components of economic freedom and private domestic investment is inherently dynamic. In this context, we build upon the work of (Agosín and Machado, 2005 ; Su and Bui, 2017 ) to employ a dynamic model. We formulate the following econometric model: PI it = f (LE it , X it ) (1) The dynamic nature of the model is captured by incorporating the lagged dependent variable (in this case, private domestic investment) alongside the explanatory variables. Given the control variables, Eq. 1 becomes: PI 𝒊,𝒕 = 𝜷𝟎 + 𝜷𝟏 P𝑰 𝒊,𝒕-𝟏 + 𝜷𝟐 EF 𝒊𝒕 + 𝜷 2 GDP 𝒊𝒕 + 𝜷 3 𝒑𝒓𝒊𝒗it _ credit 𝒊𝒕 + 𝜷 4 FDI + 𝒊𝒕 + 𝜷 5 political_stab 𝒊𝒕 + δ i + 𝜸 𝒕 + 𝜺 𝒊𝒕 (2) The dependent variable, PI𝒊t , represents the level of private domestic investment in country i at period t. EF 𝒊𝒕 corresponds to economic freedom or one of its dimensions, 𝑿 𝒊𝒕 is the vector of control variables influencing private domestic investment, 𝜷 𝒊 is the vector of parameters to be estimated, 𝜹 𝒊 , is the individual country fixed effects, 𝜸 𝒕 represents the time fixed effects 𝑒𝑡, 𝜺 𝒊𝒕 the error term. Dependent variable We measure the dependent variable, private domestic investment, by the ratio of private sector GFCF to GDP. Control variables Control variables are other variables that can describe the behavior of private domestic investment in SSA. The advantage of adding these variables to a model is that they avoid omitted variable bias in the estimation of the parameters of interest. Based on the literature, the main control variables retained are the real GDP growth rate, credit extended to the private sector, foreign direct investment and political stability. Growth in real gross domestic product real GDP is positively correlated with private investment. This positive relationship is the main assumption of the flexible accelerator model, which postulates that there is a proportional relationship between the desired capital stock and the level of real output. Empirical research shows that growth is positively correlated with private investment. Munemo ( 2012 ) found that GDP growth increases private domestic investment in Africa. Based on the almost consensual findings of the empirical literature, we expect a positive result. With regard to domestic credit for the private sector as a percentage of GDP, it should be noted that the behavior of credit-providing financial institutions (banks) has a significant effect on private investment. Empirical literature shows that the ratio of credit to GDP granted to the private sector has a positive effect on private investment (Vinod et al., 2020 ). We expect a positive sign. Debates on the relationship between FDI and private domestic investment are contradictory. Morrissey and Udomkerdmongkol ( 2012 ) show that FDI crowds out domestic investment in developing countries. In contrast, Farla et al ( 2014 ) conclude that FDI in developing countries contributes positively to domestic investment levels. We expect an ambiguous sign. Political stability is considered a fundamental determinant by private investors. Indeed, without political stability, no investor will decide to invest in an unstable environment. Ouédraogo et al. (2020) explain that when political violence (characterized by the risk of conflict), which implies instability, is higher, private investors worry about the profitability of their investment and may therefore not be encouraged to invest in the country. However, Ben-Salha and Zmami ( 2019 ) found that political violence and the absence of violence/terrorism have no significant effect on private domestic investment in the MENA region. We anticipate a positive sign. 3.1 Data This research employs an annual unbalanced panel of 41 sub-Saharan African countries over the period 2000–2021. The data for the economic freedom variables come mainly from the Fraser Institute 's Economic Freedom in the World database. This index covers five components and 25 indicators; each indicator is made up of sub-indicators, making a total of 42 variables (Gwartney et al., 2023 ). It is the most widely used in the literature (Krieger and Meierrieks, 2016 ; Bennett et al., 2017 ; Dia and Atangana Ondoa, 2023 ). Data for the dependent variable and control variables are taken from World Development Indicators ( WDI ) database of the World Bank's (2023) and the African Development Bank (AfDB). The variables, their definitions and sources are shown in Table A3 ( appendix ). Table 1 displays the descriptive statistics for the sample variables from the period 2000 to 2021. Scores on the synthetic index of economic freedom and its components range from 0 to 10, where 0 indicates less economic freedom and 10 signifies greater economic freedom. The average score for the economic freedom index in the sub-Saharan Africa (SSA) region is 6, which is approximately equivalent to the average score for the panel of countries covered by the index during the same period. On average, the private investment ratio is 11.53%, with a maximum value of 60.15% and a minimum of -32.91%. Additionally, the average annual GDP growth rate over the study period was 4.27%. Table 1 Descriptive statistics Variables Mean Standard deviation Min Max Observation Gross fixed capital formation 11.531 8.592 -32.91 60.15 902 Economic freedom 5.884 0.809 2.9 8.23 812 Government size 6.681 1.162 1.87 9.26 902 Legal system 4.326 1.092 2.11 7.08 902 Sound money 7.108 1.411 1.25 9.76 811 Freedom to trade 6.039 0.971 1.76 8.859 805 Regulation 5.57 1.018 2.53 8.140 902 Real GDP 4.05 4.84 -36.392 33.629 901 Private sector credit 19.922 22.966 0.002 142.422 815 FDI 4.343 8.019 -17.292 103.337 899 Political stability -0.5 0.865 -2.699 1.283 861 Source: Authors based on AfDB socio-economic databases, 1960–2022, Fraser Institute (Gwartney et al., 2023 ) and World Bank ( 2023 ). 3.2 Estimation procedure As illustrated in the Eq. 2, the inclusion of lagged private domestic investment on the right-hand side alongside the explanatory variables indicates the persistence of private investment over time. The presence of the lagged dependent variable among the explanatory variables renders the model dynamic, suggesting that an endogeneity issue is likely to arise due to the high probability of correlation between the lagged dependent variable and the error term. In such cases, standard econometric methods like ordinary least squares (OLS) or generalized least squares (GLS) are deemed inappropriate (Baltagi, 2013 ). To address endogeneity concerns, the literature has proposed two variants of the generalized method of moments (GMM) estimator for dynamic panels. The first variant is the difference GMM developed by Arellano and Bond ( 1991 ), and the second is the system GMM method proposed by Blundell and Bond ( 1998 ). The method proposed by Arellano and Bond ( 1991 ) method involves transforming the model into first differences to eliminate specific effects—namely, unobserved, time-invariant factors affecting the dependent variable. They suggest using level-lagged explanatory variables as instruments, which is valid under two key assumptions: first, that the error term is not serially correlated, and second, that the lagged explanatory variables are weakly exogenous (i.e., uncorrelated with future realizations of the error term). This approach is referred to as difference GMM. While this method addresses endogeneity bias, it may encounter issues when the explanatory variables are persistent, leading to weak instruments from lagged levels of the variables. Additionally, finite sample bias and a lack of precision in simulations have been documented (Arellano and Bover, 1995 and Alonso-Borrego and Arellano, 1999 ). To mitigate these limitations, Arellano and Bover ( 1995 ) and Blundell and Bond ( 1998 ) proposed an alternative known as system GMM. The application of GMM methods necessitates two conditions: first, instrument validity, and second, the absence of second-order autocorrelation. Arellano and Bond ( 1991 ), Arellano and Bover ( 1995 ) and Blundell and Bond ( 1998 ) have introduced tests for instrument validity, specifically the Sargan and Hansen over-identification tests. When the results of these tests are insignificant, it suggests that the instruments are not correlated with the residuals, thereby confirming their validity. Additionally, the Arellano-Bond AR(2) test must yield insignificant results to indicate the absence of second-order autocorrelation in the residuals. In line with existing empirical literature (Farhadi et al.2015; Su and Bui, 2017 ), we employ the system GMM estimator. This choice enables us to account for specific effects (unobserved heterogeneity) and address endogeneity bias. Furthermore, system GMM is more effective in overcoming the weaknesses related to instrument strength that are associated with the difference GMM estimator. 4 Empirical results and discussion The results indicate a positive and significant effect of economic freedom on private domestic investment at the 10% level (Table 2 ). The results indicate a positive and significant effect of economic freedom on private domestic investment at the 10% level. Gwartney ( 2009 ) illustrates this point by noting that from 1980 to 2005, nations with an average economic freedom score of 7 or above had a total investment to GDP ratio of 22.2%, compared to 18.9% for those scoring below 5. Examining the components of the index reveals that the size of government, the legal system and property rights, as well as regulations governing business, labor, and credit markets, exert a positive and significant influence on private domestic investment (as measured by gross fixed capital formation, GFCF) at both the 10% and 5% levels. Conversely, the freedom to trade with the rest of the world has a negative and significant effect, while sound money does not show a significant impact. The positive influence of government size can be understood through the lens of public investment in infrastructure—such as highways, electricity, schools, and health facilities—which can enhance the marginal productivity of private capital, thus stimulating private domestic investment. This finding aligns with Su and Bui ( 2017 ), who also show a positive effect of government size on private investment. Regarding the legal system and property rights, we observe that increased protection against expropriation enhances private investors' confidence in the legal system. Consequently, such confidence encourages them to invest in secure environments. Ojah et al ( 2010 ) found that the confidence of Ugandan and Kenyan companies in the legal system positively affects their investment decisions, although the findings were less favorable for Tanzanian companies. The regulation positively affects the private investment ratio (as a percentage of GDP). In terms of the credit market, this effect may arise from a decline in public borrowing frequency in favor of private investors. Ben-Salha and Zmami ( 2019 ) reported a significant and positive effect of credit market regulation on domestic investment in the North Africa and Middle East (MENA) region at the 5% level. Moreover, easing administrative procedures for conducting business can accelerate and increase business creation. Efforts to fight corruption and reduce bureaucratic burdens enhance the business environment, thereby stimulating both general and domestic investment. Ciccone and Papaioannou ( 2007 ) argue that lower barriers to entrepreneurship—measured by the number of procedures required to establish a new business—are particularly crucial for business formation in rapidly changing industries with expanding global demand. The negative effect of trade on private domestic investment may stem from high tariff and non-tariff trade barriers or capital controls. Domestic companies that rely on importing raw materials and equipment may view these trade policies as additional costs that hinder their operations. Ben-Salha and Zmami ( 2019 ) found that the coefficient for the average tariff is negative and statistically significant at the 10% level, indicating that high tariff barriers on imported goods can diminish domestic investment. Table 2 Basic model estimates: GMM method in a system Variables Dependent variable: Gross fixed capital formation (GFCF) by the private sector (1) (2) (3) (4) (5) (6) GDP growth -0.003 0.036 -0.087 0.035 0.059 -0.148 ∗ (0.046) (0.075) (0.077) (0.042) (0.050) (0.084) Private sector credit -0.053 -0.016 -0.109 ∗ -0.023 0.013 -0.074 ∗∗ (0.034) (0.016) (0.061) (0.023) (0.021) (0.035) FDI 0.053 0.053 0.079 0.053 0.116 0.120 ∗∗ (0.072) (0.046) (0.051) (0.061) (0.115) (0.036) Political stability -0.170 1.348 ∗∗∗ -3.130 0.573 1.602 ∗∗∗ 0.221 Economic freedom (0.736) 3.635 ∗ (0.476) (2.804 ) (0.610) (0.501) (0.633) Government size (2.001) 1.542 ∗ Legal system (0.913) 6.146 ∗ (3.710 ) Sound money 1.419 Freedom of trade (1.156) -1.584 ∗ Regulation (0.835) 3.965 ∗∗ Constant -14.65 -5.972 -18.86 -3.484 16.36 ∗∗∗ (1.643) -14.65 ∗ (11.42) (5.595 ) (16.11) (8.311) (4.969 ) (8.261) Comments 680 740 740 680 673 740 Number of countries 41 41 41 41 41 41 Time fixed effects Yes Yes Yes Yes Yes Yes Country fixed effect Yes Yes Yes Yes Yes Yes Test Hansen J 0.195 0.693 0.340 0.214 0.235 0.136 AR1 0.000 0.000 0.000 0.000 0.000 0.000 AR2 0.540 0.411 0.399 0.579 0.439 0.357 Number of instruments (i) 20 36 18 24 20 21 Instrument ratio r (n/i) 2.05 1.13 2.27 1.70 2.05 1.95 Note: robust standard errors are in brackets. *** ** * is the level of significance at the 1%, 5% and 10% thresholds, respectively. The Hansen statistic is greater than 10% and the p-values of AR (1) are less than 10% and the P-values of AR (2) are all insignificant (absence of second-order autocorrelation), so the instruments are valid. Robust standard errors are in parentheses. Robustness test In this section, we employed an alternative estimation method to assess the robustness of our findings. Specifically, we utilized the instrumental variables method, namely two-stage least squares (IV-2SLS). The results from this analysis corroborate our previous findings, thereby confirming their robustness (see Table 3 ). The consistency of these results across different estimation techniques strengthens our confidence in the relationship between economic freedom and private domestic investment, as well as the significance of its components. This reinforces the notion that improvements in economic institutions and policies positively influence private investment in sub-Saharan Africa. Table 3 Basic model estimation: alternative method IV-2SLS Variables Dependent variable: Gross fixed capital formation (GFCF) by the private sector GDP 0.0584 0.0233 -0.00347 0.0715 0.0843 -0.0217 (0.0474) (0.0607) (0.0608) (0.0498) (0.0521) (0.0606) Private sector credit 0.253*** 0.315*** 0.280*** 0.283*** 0.240*** 0.279*** (0.0482) (0.0651) (0.0670) (0.0564) (0.0642) (0.0666) IDE 0.00965 0.0896 0.0382 0.0375 0.182 0.0515 (0.163) (0.0550) (0.0750) (0.161) (0.128) (0.0749) Political stability 0.144 0.0633 -0.864 0.205 0.668 0.203 (0.639) (0.629) (0.703) (0.649) (0.651) (0.610) Economic freedom 5.306*** (1.089) Government size 0.300 (0.638) Legal system 3.959*** (1.143) Sound money 1.370*** (0.466) Freedom to trade -1.795** (0.809) Regulation 2.402*** (0.682) Observations 658 705 740 658 613 740 R-square 0.398 0.439 0.386 0.376 0.442 0.392 Number of countries 41 41 41 41 39 41 Country fixed effects Yes Yes Yes Yes Yes Yes Time fixed effects Yes Yes Yes Yes Yes Yes Kleibergen-Paap rk 73.18 98.66 124.9 53.35 50.51 128.7 Kleibergen–Paap rk (p-value) 0.000 0.000 0.000 0.000 0.000 0.000 Cragg-Donald wald 262.3 69.77 544.2 168.3 76.72 176.9 J Hansen statistics 0.811 1.413 6.68e-05 0.211 0.0213 2.612 P-value of (J Hansen) 0.368 0.493 0.993 0.646 0.989 0.106 Note: robust standard errors are in brackets. *** ** * is the level of significance at the 1%, 5% and 10% thresholds, respectively. The Hansen statistic is greater than 10% and the p-values of AR (1) are less than 10% and the P-values of AR (2) are all insignificant (absence of second-order autocorrelation), so the instruments are valid. Robust standard errors are in parentheses. 5 Conclusion In this research, we examined the effect of economic freedom on private domestic investment on a panel of 41 SSA countries over the period 2000–2021. To test this empirical relationship, we used the system GMMs. The results indicate that economic freedom positively affects domestic investment in SSA. Countries with greater economic freedom experience higher private domestic investment. This result indicates that the quality of economic institutions and policies is a fundamental determinant of private domestic investment. Furthermore, the results reveal that the components of economic freedom, namely the size of government, the legal system and property rights, as well as the regulation of business, labor and credit markets, are the components of economic freedom that also stimulate private domestic investment. On the other hand, freedom of trade affects it negatively. To improve the business environment and increase private domestic investment in Sub-Saharan Africa, public decision-makers need to improve economic institutions and policies. More specifically, countries need to increase and improve the quality of public spending. Sub-Saharan African countries also need to strengthen their legal systems, relax restrictions on capital movements and tariff barriers, and lay down a good regulatory environment business to stimulate private investment. To this end, countries should reduce administrative procedures and bureaucratic costs to make it easier to set up a business. Similarly, it is important to remove constraints on access to credit for domestic investors. Declarations Author Contribution Dr.Dia wrote the manuscript with support of Dr. Ouedraogo. Dr.Dia developed the methodology and performed the computations. Dr. Ouedraogo verified the analytical methods . Dr.Ouedraogo provided critical feedback and helped shape the research, analysis and manuscript. References Abel, A. B. (1983). Optimal investment under uncertainty. The American Economic Review , 73(1):228 233. Aboal, D., Noya, N., and Rius, A. (2014). Contract Enforcement and Investment: A Systematic Review of the Evidence. World Development , 64:322 338. Acemoglu, D., Johnson, S., & Robinson, J. A. (2012). The Colonial Origins of Comparative Development: An Empirical Investigation: Reply. The American Economic Review , 102 (6), 3077–3110. Acemoglu, D., Johnson, S., and Robinson, J. A. (2005). Institutions as a Fundamental Cause of Long-Run Growth . 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Bahal, G., Raissi, M., and Tulin, V. (2018). Crowding-out or crowding-in? Public and private investment in India. World Development , 109:323 333. Baltagi, B. H. (2013). Econometric analysis of panel data. Wiley, Chichester, 5th edition. OCLC: 855808887. Barro, R. J. (1990). Government Spending in a Simple Model of Endogenous Growth. Journal of Political Economy , 98(5):103 126. Barro, R. J. (1991). Economic Growth in a Cross Section of Countries. The Quarterly Journal of Economics , 106(2):407 443. Ben-Salha, O. and Zmami, M. (2019). Does the business climate affect private domestic and foreign investment? empirical evidence from the MENA region. Annals of Financial Economics , 14(04):1950020. Bennett, D. L., Faria, H. J., Gwartney, J. D., and Morales, D. R. (2017). Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective. World Development , 96:503 519. Bhagwati, J. N. (2005). Reshaping the WTO. Far Eastern Economic Review, 168(2). Bjørnskov, C. and Foss, N. (2008). Economic freedom and entrepreneurial activity: Some cross-country evidence. Public Choice, 134:307 328. Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics , 87 (1), 115143‑. Buiter, W. H. (1977) `Crowding out' and the effectiveness of fiscal policy. Journal of Public Economics, 7(3):309 328. Caballero, R. (1991). On the Sign of the Investment-Uncertainty Relationship. American Economic Review , 81 (1), ‑279288. Ciccone, A. and Papaioannou, E. (2007). Red Tape and Delayed Entry. Journal of the European Economic Association , 5(2-3):444 458. Dawson, J. W. (2003). Causality in the freedom growth relationship. European Journal of Political Economy , 19(3):479 495. de Haan, J. and Sturm, J.-E. (2000). On the relationship between economic freedom and economic growth. European Journal of Political Economy , 16(2):215 241. Dia, I. and Atangana Ondoa, H. (2023). Does Economic Freedom Improve FDI Inflows in Sub-Saharan Africa? Journal of Economic Integration , 38(3):383 410. Dixit, K. and Pindyck, R. (1994). Investment under Uncertainty. Princeton: Princeton University Press. Doucouliagos, C. and Ulubasoglu, M. A. (2006). Economic freedom and economic growth: Does specification make a difference? European Journal of Political Economy , 22(1):60 81. Easterly, W. and Rebelo, S. (1993). Fiscal policy and economic growth: An empirical investigation. Journal of Monetary Economics, 32(3):417 458. Farhadi, M., Islam, M. R., and Moslehi, S. (2015). Economic Freedom and Productivity Growth in Resource-rich Economies. World Development , 72:109 126. Farla, K., de Crombrugghe, D., and Verspagen, B. (2014). Institutions, Foreign Direct Investment, and Domestic Investment: Crowding Out or Crowding In? World Development , 88:1 9. Greenwald, B. and Stiglitz, J. E. (2006). Helping Infant Economies Grow: Foundations of Trade Policies for Developing Countries. American Economic Review , 96(2):141 146. Greenwood, J. and Smith, B. (1997). Financial markets in development, and the develop- ment of nancial markets. Journal of Economic Dynamics and Control , 21(1):145 181. Gwartney, J. (2009). Institutions, Economic Freedom, and Cross-Country Di erences in Performance. Southern Economic Journal , 75:937 956. Gwartney, J., Holcombe, R., and Lawson, R. A. (2006). Institutions and the Impact of Investment on Growth. Kyklos , 59(2):255 273. Gwartney, J., Lawson, R., and Murphy, R. (2023). Economic Freedom of the World: 2023 Annual Report . Fraser Institute. Hartman, R. (1972). The e ects of price and cost uncertainty on investment. Journal of Economic Theory , 5(2):258 266. IMF (2018). Regional economic outlook. Sub-Saharan Africa . Technical report, Washington, DC. IMF (2020). Regional economic outlook. Sub-Saharan Africa: a difficult road to recovery . Technical report, Washington, DC. Jongwanich, J. and Kohpaiboon, A. (2008). Private Investment: Trends and Determinants in Thailand. World Development , 36(10):1709 1724. Justesen, M. K. (2008). The e ect of economic freedom on growth revisited: New evi- dence on causality from a panel of countries 1970 1999. European Journal of Political Economy , 24(3):642 660. Keller, W. (2004). International Technology Diffusion. Journal of Economic Literature , 42(3):752 782. Krieger, T. and Meierrieks, D. (2016). Political capitalism: The interaction between income inequality, economic freedom and democracy. European Journal of Political Economy , 45:115 132. Malanski, L. K. and Póvoa, A. C. S. (2021). Economic growth and corruption in emerging markets: Does economic freedom matter? International Economics , 166:58 70. McKinnon, R. I. (1973). Money and Capital in Economic Development . Washington, DC: Brookings Institution. Misati, R. N. and Nyamongo, E. M. (2011). Financial development and private investment in Sub-Saharan Africa. Journal of Economics and Business , 63(2):139 151. Morrissey, O. and Udomkerdmongkol, M. (2012). Governance, Private Investment and Foreign Direct Investment in Developing Countries. World Development , 40(3):437 445. Munemo, J. (2012). Business regulations and Private Domestic Investment in Africa. Journal of African Business , 13(2):157 164. North, D. C. (1990). Institutions, institutional change, and economic performance . Cambridge University Press, Cambridge; New York. OCLC: 21293340. Ojah, K., Gwatidzo, T., and Kaniki, S. (2010). Legal Environment, Finance Channels and Investment: The East African Example. Journal of Development Studies , 46(4):724 744. Oshikoya, T. (1994). Macroeconomic determinants of domestic private investment in Africa. An empirical analysis. Economic Development and Cultural Change , 42(3):573 596. Ou draogo, R., Sawadogo, R., and Sawadogo, H. (2020). Private and public investment in sub-Saharan Africa: The role of instability risks. Economic Systems , 44(2):100787. Rodrik, D. (2000) Institutions for high-quality growth: What they are and how to acquire them. Studies in Comparative International Development , 35(3):3 31. Solow, R. (1956). A Contribution to the Theory of Economic Growth. The Quarterly Journal of Economics , 70(1):65 94. Stiglitz, J. E. (2002). Globalization and Its Discontents . W. W. Norton & Company, New York, 1st edition. Su, T. D. and Bui, T. M. H. (2017). Government size, public governance and private investment: The case of Vietnamese provinces. Economic Systems , 41(4):651 666. Vinod, H., Karun, H., and Chakraborty, L. S. (2020). Chapter 5 - Encouraging private corporate investment in India . In Vinod, H. D. and Rao, C. R., editors, Handbook of Statistics, volume 42 of Financial, Macro and Micro Econometrics Using R, pages 155 183. World Bank (2023). World development indicators. Technical report , Washington D.C.: World Bank, Washington D.C.: World Bank. Additional Declarations No competing interests reported. Supplementary Files Appendix.docx Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. Our growing team is made up of researchers and industry professionals working together to solve the most critical problems facing scientific publishing. Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-5382760","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":373717830,"identity":"b0692c7a-53d1-4f6e-a1a0-825d6c9e714f","order_by":0,"name":"Ibrahima Dia","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAAzklEQVRIiWNgGAWjYBACNgkgwWPAUM8P4iUUkKAlQbIBpMWAGGvAWkCKD4B4xGjhk+59+OFNgV2e8fnViR8eGDDI84sdIOAwmePGknMMkovNbrzdLAF0mOHM2QkEtEikMUjzGDAzbrtxdgNIS4LBbcJamH/zGNQzbp5xdvMPYrWwAW05nLiBv3cbkbbIHGOznGNw3FjiBu82iwQDCcJ+kZ/dxnzjzZ9qOf7+s5tv/qiwkeeXJqAFASTAKiWIVQ4C/AdIUT0KRsEoGAUjCQAAi8E+kvRqcGoAAAAASUVORK5CYII=","orcid":"","institution":"École Supérieure Polytechnique, Mauritania","correspondingAuthor":true,"prefix":"","firstName":"Ibrahima","middleName":"","lastName":"Dia","suffix":""},{"id":373717831,"identity":"6e94059e-50c7-4ff0-bf49-0a60c6343554","order_by":1,"name":"Idrissa Ouedraogo","email":"","orcid":"","institution":"Department of Economics, CEDRES, Thomas Sankara University, Saaba, Burkina Faso.","correspondingAuthor":false,"prefix":"","firstName":"Idrissa","middleName":"","lastName":"Ouedraogo","suffix":""}],"badges":[],"createdAt":"2024-11-03 15:38:10","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-5382760/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-5382760/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":69068665,"identity":"431ccfa6-0b72-4ed6-8ac9-a763db5f8e06","added_by":"auto","created_at":"2024-11-15 09:36:24","extension":"png","order_by":1,"title":"Figure 1","display":"","copyAsset":false,"role":"figure","size":32050,"visible":true,"origin":"","legend":"\u003cp\u003eAverage trend of economic freedom and private investment in SSA\u003cstrong\u003e.\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eSource: Authors based on AfDB socio-economic databases, 1960-2022, Fraser Institute (Gwartney et al., 2023) and World Bank (2023).\u003c/p\u003e","description":"","filename":"1.png","url":"https://assets-eu.researchsquare.com/files/rs-5382760/v1/4dd36f99001443368d73cd96.png"},{"id":69068393,"identity":"e66f76fe-71da-4ef0-9998-15629c21533d","added_by":"auto","created_at":"2024-11-15 09:28:24","extension":"png","order_by":2,"title":"Figure 2","display":"","copyAsset":false,"role":"figure","size":47290,"visible":true,"origin":"","legend":"\u003cp\u003eAverage trend of economic freedom and its 5 components\u003cstrong\u003e.\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eSource: Authors based on AfDB socio-economic databases, 1960-2022, Fraser Institute (Gwartney et al., 2023) and World Bank (2023).\u003c/p\u003e","description":"","filename":"2.png","url":"https://assets-eu.researchsquare.com/files/rs-5382760/v1/90fed7e4684a69e3a9faec1a.png"},{"id":69068396,"identity":"bd48bacc-dee1-41b3-930c-48eddae45d35","added_by":"auto","created_at":"2024-11-15 09:28:24","extension":"png","order_by":3,"title":"Figure 3","display":"","copyAsset":false,"role":"figure","size":166973,"visible":true,"origin":"","legend":"\u003cp\u003eAverage correlation between economic freedom and its 5 components and private investment in SSA\u003cstrong\u003e.\u003c/strong\u003e\u003c/p\u003e\n\u003cp\u003eSource: Authors based on AfDB socio-economic databases, 1960-2022, Fraser Institute (Gwartney et al., 2023) and World Bank (2023).\u003c/p\u003e","description":"","filename":"3.png","url":"https://assets-eu.researchsquare.com/files/rs-5382760/v1/4adb8bd68567adfacb379409.png"},{"id":69518586,"identity":"6ec69adb-8468-4fa2-95cc-d6d96cf2c78c","added_by":"auto","created_at":"2024-11-21 08:38:20","extension":"pdf","order_by":0,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":990890,"visible":true,"origin":"","legend":"","description":"","filename":"manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-5382760/v1/97f01865-f477-4272-b955-3305b2fe5376.pdf"},{"id":69068395,"identity":"e8c42cc2-a9e8-49ac-a592-81184f03d79e","added_by":"auto","created_at":"2024-11-15 09:28:24","extension":"docx","order_by":1,"title":"","display":"","copyAsset":false,"role":"supplement","size":26633,"visible":true,"origin":"","legend":"","description":"","filename":"Appendix.docx","url":"https://assets-eu.researchsquare.com/files/rs-5382760/v1/6c92678428f5c98d417999f4.docx"}],"financialInterests":"No competing interests reported.","formattedTitle":"\u003cp\u003e\u003cstrong\u003eEconomic freedom and private domestic investment in sub-Saharan Africa\u003c/strong\u003e\u003c/p\u003e","fulltext":[{"header":"1 Introduction","content":"\u003cp\u003eInvestment is widely recognized as the engine of economic growth, as outlined in both neoclassical and endogenous growth theories (Solow, \u003cspan citationid=\"CR56\" class=\"CitationRef\"\u003e1956\u003c/span\u003e; Barro, \u003cspan citationid=\"CR14\" class=\"CitationRef\"\u003e1991\u003c/span\u003e). By enhancing the productive capacity through the accumulation of physical and human capital, and by driving technological advancements through research and development and innovation, investment significantly contributes to economic growth. In developing Asian economies, private investment has been particularly vital in fostering this growth (Jongwanich and Kohpaiboon, \u003cspan citationid=\"CR40\" class=\"CitationRef\"\u003e2008\u003c/span\u003e).\u003c/p\u003e \u003cp\u003eSub-Saharan Africa (SSA) has the lowest average ratio of private investment to GDP among all regions, at just 2%. Between 2010 and 2016, this ratio averaged 15% of GDP, compared to 22% in emerging Asia, 18% in Europe, 17% in Latin America, and 16% in the Middle East and North Africa. Notably, investment in SSA has declined more rapidly than in other emerging markets since 2015, experiencing an average drop of 4% in both 2015 and 2016. Within the region, the low level of private investment is particularly striking: from 2010 to 2016, the ratio was 14% in oil-producing countries, 17% in other resource-rich nations, and 15% in resource-poor countries (IMF, \u003cspan citationid=\"CR37\" class=\"CitationRef\"\u003e2018\u003c/span\u003e).\u003c/p\u003e \u003cp\u003eThe African Development Bank highlights that the private sector plays a critical role in the economy, accounting for 90% of jobs, 70% of gross domestic product, and 70% of total investments.\u003c/p\u003e \u003cp\u003eDespite SSA's underperformance, the IMF report (2020) indicates that achieving sustainable and inclusive growth will necessitate an annual investment of \u003cspan\u003e$\u003c/span\u003e420\u0026nbsp;billion by 2030, a goal that cannot be met without significant private sector involvement. Additionally, the report highlights that SSA countries experiencing sustained increases in private investment are those that have established macroeconomic stability and focused on building strong institutions.\u003c/p\u003e \u003cp\u003eOver the past three decades, institutions have become crucial factors in determining growth and investment (North, \u003cspan citationid=\"CR50\" class=\"CitationRef\"\u003e1990\u003c/span\u003e; Rodrik, \u003cspan citationid=\"CR55\" class=\"CitationRef\"\u003e2000\u003c/span\u003e; Acemoglu et al., \u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e2012\u003c/span\u003e). The literature has identified various types of institutions that can directly affect investment, including economic institutions that guarantee the protection of property rights, open markets and so on. In this context, economic freedom has emerged as a key indicator of institutional quality, linked to enhanced economic performance, especially regarding investment. Economic freedom measures the degree to which economic institutions and policies encourage voluntary exchange, freedom of choice, protection of property rights and freedom of competition.\u003c/p\u003e \u003cp\u003eThe literature suggests that countries with higher levels of economic freedom tend to experience significantly better economic performance. This improvement is attributed to an economically free environment, which enhances productivity, fosters investment in human and physical capital, and creates more opportunities for entrepreneurial activity (de Haan and Sturm, \u003cspan citationid=\"CR24\" class=\"CitationRef\"\u003e2000\u003c/span\u003e; Justesen, \u003cspan citationid=\"CR41\" class=\"CitationRef\"\u003e2008\u003c/span\u003e). For example, much research has shown that economic freedom promotes economic growth (Doucouliagos and Ulubasoglu2006; Azman-Saini et al., \u003cspan citationid=\"CR9\" class=\"CitationRef\"\u003e2010\u003c/span\u003e; Farhadi et al., \u003cspan citationid=\"CR29\" class=\"CitationRef\"\u003e2015\u003c/span\u003e; Malanski and Pvoa, 2021), FDI in sub-Saharan Africa (Dia and Atangana Ondoa, \u003cspan citationid=\"CR25\" class=\"CitationRef\"\u003e2023\u003c/span\u003e) and entrepreneurship (Bj\u0026oslash;Bj\u0026oslash;rnskov and Foss, \u003cspan citationid=\"CR18\" class=\"CitationRef\"\u003e2008\u003c/span\u003e).\u003c/p\u003e \u003cp\u003eOther researchers have found that economic freedom has a direct effect on growth, and an indirect one through investment (Dawson, \u003cspan citationid=\"CR23\" class=\"CitationRef\"\u003e2003\u003c/span\u003e). Based on the relation between economic freedom and investment, Gwartney et al (\u003cspan citationid=\"CR34\" class=\"CitationRef\"\u003e2006\u003c/span\u003e) isolated the independent effect of economic freedom on growth through its effect on the level of private investment (% of GDP) and the productivity of investment, using a sample of 94 countries over the period 1980\u0026ndash;2000. They used the recursive method to separate the influence of economic freedom based on 1980 levels, as well as changes during the 1980s and 1990s. They found that economic freedom coefficients have a positive effect on the private investment ratio (as a percentage of GDP). Similarly, Justesen (\u003cspan citationid=\"CR41\" class=\"CitationRef\"\u003e2008\u003c/span\u003e) sought to determine the direction of causality between economic freedom and its five components, on the one hand, and economic growth and investment, on the other. He performed the Granger causality test using a fixed-effect model on a five-year panel of 76 countries over the period 1970\u0026ndash;1999. He demonstrates that economic freedom and its components have a significant positive causal effect on investment.\u003c/p\u003e \u003cp\u003eThe aim of this research is to investigate the effect of economic freedom on private domestic investment across a sample of 41 sub-Saharan African countries from 2000 to 2021. It differs from the existing literature in three ways. First, it employs a dynamic panel approach that addresses endogeneity issues and considers the dynamic effects of private domestic investment through the generalized method of moments (GMM) system. Second, unlike Justesen (\u003cspan citationid=\"CR41\" class=\"CitationRef\"\u003e2008\u003c/span\u003e) and Gwartney et al. (\u003cspan citationid=\"CR34\" class=\"CitationRef\"\u003e2006\u003c/span\u003e), who use data in five- or ten-year intervals, this study uses annual data over the research period. The private investment ratio, measured by the private sector's share of gross fixed capital formation (GFCF), is assessed annually, making the use of annual data more pertinent. Finally, this study focuses exclusively on SSA, a region that has not yet been the subject of empirical research on this specific topic.\u003c/p\u003e \u003cp\u003eThe remainder of the paper is structured as follows: Section 2 provides a review of the literature on the effects of economic freedom on private domestic investment. Section 3 presents the methodology and data. Section 4 shows the empirical results and discussion, and section 5 concludes.\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e"},{"header":"2 Literature review","content":"\u003cp\u003eIn this section, we review the theoretical debates regarding the relationship between the five components of the Index of Economic Freedom and private domestic investment. Each component influences private domestic investment in distinct ways.. They are: (1) size of government, (2) legal system and property rights, (3) sound money, (4) freedom to trade with the rest of the world and (5) regulation of business, labor and credit markets.\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cdiv id=\"Sec3\" class=\"Section2\"\u003e \u003ch2\u003e2.1 Size of government and private investment\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eThe effect of the size of government (via public spending and taxes) on private investment has been a longstanding subject of debate. Two primary opposing theories emerge in this discourse. On one side, the theoretical literature suggests that public investment may crowd out private investment, either by increasing public spending without sufficient tax revenue or through high taxation (Buiter, \u003cspan citationid=\"CR20\" class=\"CitationRef\"\u003e1977\u003c/span\u003e; Easterly and Rebelo, \u003cspan citationid=\"CR28\" class=\"CitationRef\"\u003e1993\u003c/span\u003e). Conversely, the literature arguing that public investment can encourage private investment, producing a crowding in effect on the economy over the long term. Public spending on infrastructure or the provision of public goods and services fosters a stable macroeconomic environment, which may attract private investment by reducing investment costs and enhancing the productivity of private capital (Barro, \u003cspan citationid=\"CR13\" class=\"CitationRef\"\u003e1990\u003c/span\u003e; Bahal et al., \u003cspan citationid=\"CR10\" class=\"CitationRef\"\u003e2018\u003c/span\u003e).\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec4\" class=\"Section2\"\u003e \u003ch2\u003e2.2 Legal system, property rights and private investment\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eNorth (\u003cspan citationid=\"CR50\" class=\"CitationRef\"\u003e1990\u003c/span\u003e) argues that good institutions that guarantee property rights reduce the transaction, control and contract enforcement costs that affect economic activity. According to Acemoglu et al (\u003cspan citationid=\"CR4\" class=\"CitationRef\"\u003e2005\u003c/span\u003e), in the absence of property rights, individuals have no incentive to invest in physical or human capital, or to adopt more efficient technologies. In environments where property rights are weakly protected, politicians or powerful groups are more likely to expropriate productive assets (Ojah et al., \u003cspan citationid=\"CR51\" class=\"CitationRef\"\u003e2010\u003c/span\u003e). Similarly, Gwartney et al (\u003cspan citationid=\"CR34\" class=\"CitationRef\"\u003e2006\u003c/span\u003e) emphasize that investors are reluctant to commit capital where property rights are insecure, fearing that the returns on their investments may be appropriated by others.\u003c/p\u003e \u003cp\u003eFurthermore, compliance with and enforcement of contracts is necessary to attract private investors. Aboal et al, (\u003cspan citationid=\"CR2\" class=\"CitationRef\"\u003e2014\u003c/span\u003e) explain that poor contract enforcement can impact investment decisions on two levels. First, it can directly increase uncertainty around investment projects, thereby influencing investor decisions by raising project costs and reducing expected returns. Second, it can indirectly affect investors\u0026rsquo; decisions or abilities, potentially leading them to choose less efficient technologies, limit the development of specific assets dependent on contracts, or exacerbate the adverse effects of weak infrastructure or regulatory environments.\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec5\" class=\"Section2\"\u003e \u003ch2\u003e2.3 Sound money and private investment\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eThe relationship between inflation and private investment remains a topic of debate. On one hand, inflation-related uncertainty can have a positive effect on private investment decisions among risk-neutral investors (Hartman, \u003cspan citationid=\"CR36\" class=\"CitationRef\"\u003e1972\u003c/span\u003e; Abel, \u003cspan citationid=\"CR1\" class=\"CitationRef\"\u003e1983\u003c/span\u003e). However, Caballero (\u003cspan citationid=\"CR21\" class=\"CitationRef\"\u003e1991\u003c/span\u003e) moderates this view by asserting that the impact of uncertainty on investment depends entirely on market structure. On the other hand, uncertainty is often viewed as an indicator of macroeconomic instability, which can negatively impact private investment (Oshikoya, \u003cspan citationid=\"CR52\" class=\"CitationRef\"\u003e1994\u003c/span\u003e). According to real options theory, firms are likely to delay irreversible investments in uncertain economic conditions to gather additional information (Dixit and Pindyck, \u003cspan citationid=\"CR26\" class=\"CitationRef\"\u003e1994\u003c/span\u003e). The latter add that, once the investment is made, firms may incur high costs to repurpose it for other projects. Nevertheless, Keller (\u003cspan citationid=\"CR42\" class=\"CitationRef\"\u003e2004\u003c/span\u003e) argues that in the presence of irreversibility and economic uncertainty, firms may find it preferable to proceed with investments only if expected returns marginally exceed investment costs.\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec6\" class=\"Section2\"\u003e \u003ch2\u003e2.4 Freedom to trade and private investment\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eThe effects of trade liberalization have been the subject of considerable debate. Gwartney (\u003cspan citationid=\"CR33\" class=\"CitationRef\"\u003e2009\u003c/span\u003e) posits that reduced transport and communication costs, alongside trade liberalization, facilitate production even in remote areas globally, thereby encouraging investment and entrepreneurship by allowing greater flexibility in production location. Bhagwati (\u003cspan citationid=\"CR17\" class=\"CitationRef\"\u003e2005\u003c/span\u003e) also advocates for increased trade liberalization but contends that developing countries should be compensated for the loss of tariff revenue, and financial support should be provided to help producers\u0026mdash;particularly smaller ones\u0026mdash;transition to competitive exporting.\u003c/p\u003e \u003cp\u003eIn contrast, Stiglitz (\u003cspan citationid=\"CR57\" class=\"CitationRef\"\u003e2002\u003c/span\u003e) argues that trade liberalization can hinder growth by preventing countries, such as those in sub-Saharan Africa, from pursuing industrial development strategies, thus limiting opportunities for knowledge accumulation and productivity enhancement. Similarly, Greenwald and Stiglitz (\u003cspan citationid=\"CR31\" class=\"CitationRef\"\u003e2006\u003c/span\u003e) assert that trade restrictions may be necessary to bridge the technological knowledge gap between developed and emerging economies by fostering the growth of a modern industrial sector.\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec7\" class=\"Section2\"\u003e \u003ch2\u003e2.5 Regulation and private investment\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eEconomic regulation refers to government intervention or expansion in economic affairs, including business activities, labor markets, and credit regulation, aimed either at correcting or substituting market functions. The literature suggests that excessive regulation can negatively impact business activities. Restrictive regulations may foster corruption by positioning officials to dispense favors or impose costs on businesses (Gwartney, \u003cspan citationid=\"CR33\" class=\"CitationRef\"\u003e2009\u003c/span\u003e). Bj\u0026oslash;rnskov and Foss (\u003cspan citationid=\"CR18\" class=\"CitationRef\"\u003e2008\u003c/span\u003e) observe that while regulations can provide support to entrepreneurs by establishing clear rules, overly restrictive regulations may impose burdens, especially on start-ups with high growth potential, by inflating start-up costs. The development of the financial system through financial liberalization can improve information asymmetry effects and reduce transaction costs, influencing decisions related to savings and investment (McKinnon, \u003cspan citationid=\"CR45\" class=\"CitationRef\"\u003e1973\u003c/span\u003e; Greenwood and Smith, \u003cspan citationid=\"CR32\" class=\"CitationRef\"\u003e1997\u003c/span\u003e). Financial instruments help mitigate information asymmetry, enforce rules, and lower transaction costs, ultimately impacting savings rates, investment choices, technological advancement, and stable growth rates (Misati and Nyamongo, \u003cspan citationid=\"CR46\" class=\"CitationRef\"\u003e2011\u003c/span\u003e). However, Stiglitz (\u003cspan citationid=\"CR57\" class=\"CitationRef\"\u003e2002\u003c/span\u003e) declares that credit market deregulation may destabilize developing economies by enabling speculative capital flows. He advocates for banking regulations, such as restrictions on lending for real estate speculation and limits on bank asset growth rates, to ensure that market liberalization does not deprive small businesses of the financing required for their investment projects.\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003c/div\u003e"},{"header":"3 Methodology and data","content":"\u003cdiv class=\"BlockQuote\"\u003e\n \u003cp\u003eThe choice of study period is dictated by the annual availability of data from 2000 to 2021. Annual data are available from 2000 onwards, since before this date data were produced every five years, and 2021 corresponds to the last year available in the database. Similarly, given the problems of data availability for some countries, the sample size includes 41 countries (Table \u003cspan class=\"InternalRef\"\u003eA2\u003c/span\u003e, list of countries in \u003cspan class=\"InternalRef\"\u003eappendix\u003c/span\u003e).\u003c/p\u003e\n \u003cp\u003e\u003cstrong\u003eEmpirical model specification\u003c/strong\u003e\u003c/p\u003e\n \u003cp\u003eThe relationship between the components of economic freedom and private domestic investment is inherently dynamic. In this context, we build upon the work of (Agos\u0026iacute;n and Machado, \u003cspan class=\"CitationRef\"\u003e2005\u003c/span\u003e; Su and Bui, \u003cspan class=\"CitationRef\"\u003e2017\u003c/span\u003e) to employ a dynamic model.\u003c/p\u003e\n \u003cp\u003eWe formulate the following econometric model:\u003c/p\u003e\n \u003cp\u003e\u003cem\u003ePI\u003c/em\u003e \u003csub\u003e\u0026nbsp;\u003cem\u003eit\u003c/em\u003e\u0026nbsp;\u003c/sub\u003e \u003cem\u003e= f (LE\u003c/em\u003e\u003csub\u003e\u003cem\u003eit\u003c/em\u003e\u003c/sub\u003e, \u003cem\u003eX\u003c/em\u003e\u003csub\u003e\u003cem\u003eit\u003c/em\u003e\u003c/sub\u003e\u003cem\u003e) (1)\u003c/em\u003e\u003c/p\u003e\n \u003cp\u003eThe dynamic nature of the model is captured by incorporating the lagged dependent variable (in this case, private domestic investment) alongside the explanatory variables.\u003c/p\u003e\n\u003c/div\u003e\n\u003cp\u003eGiven the control variables, Eq.\u0026nbsp;1 becomes:\u003c/p\u003e\n\u003cdiv class=\"BlockQuote\"\u003e\n \u003cp\u003e\u003cstrong\u003ePI\u003c/strong\u003e \u003csub\u003e𝒊,𝒕\u003c/sub\u003e = 𝜷𝟎 + 𝜷𝟏\u003cstrong\u003eP𝑰\u003c/strong\u003e\u003csub\u003e\u003cstrong\u003e𝒊,𝒕-𝟏\u003c/strong\u003e\u003c/sub\u003e + 𝜷𝟐\u003cstrong\u003eEF\u003c/strong\u003e\u003csub\u003e𝒊𝒕\u003c/sub\u003e + 𝜷\u003csub\u003e\u003cstrong\u003e2\u003c/strong\u003e\u003c/sub\u003e \u003cstrong\u003eGDP\u003c/strong\u003e\u003csub\u003e𝒊𝒕\u003c/sub\u003e + 𝜷\u003csub\u003e\u003cstrong\u003e3\u003c/strong\u003e\u003c/sub\u003e \u003cstrong\u003e𝒑𝒓𝒊𝒗it\u003c/strong\u003e_\u003cstrong\u003ecredit\u003c/strong\u003e\u003csub\u003e\u003cstrong\u003e𝒊𝒕\u003c/strong\u003e\u003c/sub\u003e + 𝜷\u003csub\u003e\u003cstrong\u003e4\u003c/strong\u003e\u003c/sub\u003e \u003cstrong\u003eFDI\u003c/strong\u003e +\u003csub\u003e𝒊𝒕\u003c/sub\u003e + 𝜷\u003csub\u003e\u003cstrong\u003e5\u003c/strong\u003e\u003c/sub\u003e \u003cstrong\u003epolitical_stab\u003c/strong\u003e\u003csub\u003e𝒊𝒕\u003c/sub\u003e\u0026thinsp;+\u0026thinsp;\u003cstrong\u003e\u0026delta;\u003c/strong\u003e\u003csub\u003e\u003cstrong\u003ei\u003c/strong\u003e\u003c/sub\u003e + 𝜸\u003csub\u003e𝒕\u003c/sub\u003e + 𝜺\u003csub\u003e𝒊𝒕\u003c/sub\u003e\u003c/p\u003e\n \u003cp\u003e(2)\u003c/p\u003e\n \u003cp\u003eThe dependent variable, \u003cstrong\u003ePI𝒊t\u003c/strong\u003e, represents the level of private domestic investment in country i at period t. \u003cstrong\u003eEF\u003c/strong\u003e\u003csub\u003e𝒊𝒕\u003c/sub\u003e corresponds to economic freedom or one of its dimensions, 𝑿\u003csub\u003e𝒊𝒕\u003c/sub\u003e is the vector of control variables influencing private domestic investment, 𝜷\u003csub\u003e𝒊\u003c/sub\u003e is the vector of parameters to be estimated, 𝜹\u003csub\u003e𝒊\u003c/sub\u003e, is the individual country fixed effects, 𝜸\u003csub\u003e𝒕\u003c/sub\u003e represents the time fixed effects 𝑒𝑡, 𝜺\u003csub\u003e𝒊𝒕\u003c/sub\u003e the error term.\u003c/p\u003e\n\u003c/div\u003e\n\u003cp\u003e\u003cstrong\u003eDependent variable\u003c/strong\u003e\u003c/p\u003e\n\u003cdiv class=\"BlockQuote\"\u003e\n \u003cp\u003eWe measure the dependent variable, private domestic investment, by the ratio of private sector GFCF to GDP.\u003c/p\u003e\n\u003c/div\u003e\n\u003cp\u003e\u003cstrong\u003eControl variables\u003c/strong\u003e\u003c/p\u003e\n\u003cdiv class=\"BlockQuote\"\u003e\n \u003cp\u003eControl variables are other variables that can describe the behavior of private domestic investment in SSA. The advantage of adding these variables to a model is that they avoid omitted variable bias in the estimation of the parameters of interest. Based on the literature, the main control variables retained are the real GDP growth rate, credit extended to the private sector, foreign direct investment and political stability.\u003c/p\u003e\n \u003cp\u003eGrowth in real gross domestic product \u003cstrong\u003ereal GDP\u003c/strong\u003e is positively correlated with private investment. This positive relationship is the main assumption of the flexible accelerator model, which postulates that there is a proportional relationship between the desired capital stock and the level of real output. Empirical research shows that growth is positively correlated with private investment. Munemo (\u003cspan class=\"CitationRef\"\u003e2012\u003c/span\u003e) found that GDP growth increases private domestic investment in Africa. Based on the almost consensual findings of the empirical literature, we expect a positive result.\u003c/p\u003e\n \u003cp\u003eWith regard to domestic credit for the private sector as a percentage of GDP, it should be noted that the behavior of credit-providing financial institutions (banks) has a significant effect on private investment. Empirical literature shows that the ratio of credit to GDP granted to the private sector has a positive effect on private investment (Vinod et al., \u003cspan class=\"CitationRef\"\u003e2020\u003c/span\u003e). We expect a positive sign.\u003c/p\u003e\n \u003cp\u003eDebates on the relationship between \u003cstrong\u003eFDI\u003c/strong\u003e and private domestic investment are contradictory. Morrissey and Udomkerdmongkol (\u003cspan class=\"CitationRef\"\u003e2012\u003c/span\u003e) show that FDI crowds out domestic investment in developing countries. In contrast, Farla et al (\u003cspan class=\"CitationRef\"\u003e2014\u003c/span\u003e) conclude that FDI in developing countries contributes positively to domestic investment levels. We expect an ambiguous sign.\u003c/p\u003e\n \u003cp\u003ePolitical stability is considered a fundamental determinant by private investors. Indeed, without political stability, no investor will decide to invest in an unstable environment. Ou\u0026eacute;draogo et al. (2020) explain that when political violence (characterized by the risk of conflict), which implies instability, is higher, private investors worry about the profitability of their investment and may therefore not be encouraged to invest in the country. However, Ben-Salha and Zmami (\u003cspan class=\"CitationRef\"\u003e2019\u003c/span\u003e) found that political violence and the absence of violence/terrorism have no significant effect on private domestic investment in the MENA region. We anticipate a positive sign.\u003c/p\u003e\n\u003c/div\u003e\n\u003cdiv id=\"Sec9\" class=\"Section2\"\u003e\n \u003ch2\u003e3.1 Data\u003c/h2\u003e\n \u003cdiv class=\"BlockQuote\"\u003e\n \u003cp\u003eThis research employs an annual unbalanced panel of 41 sub-Saharan African countries over the period 2000\u0026ndash;2021. The data for the economic freedom variables come mainly from the \u003cem\u003eFraser Institute\u003c/em\u003e\u0026apos;s Economic Freedom in the World database. This index covers five components and 25 indicators; each indicator is made up of sub-indicators, making a total of 42 variables (Gwartney et al., \u003cspan class=\"CitationRef\"\u003e2023\u003c/span\u003e). It is the most widely used in the literature (Krieger and Meierrieks, \u003cspan class=\"CitationRef\"\u003e2016\u003c/span\u003e; Bennett et al., \u003cspan class=\"CitationRef\"\u003e2017\u003c/span\u003e; Dia and Atangana Ondoa, \u003cspan class=\"CitationRef\"\u003e2023\u003c/span\u003e). Data for the dependent variable and control variables are taken from World Development Indicators (\u003cem\u003eWDI\u003c/em\u003e) database of the World Bank\u0026apos;s (2023) and the African Development Bank (AfDB). The variables, their definitions and sources are shown in Table \u003cspan class=\"InternalRef\"\u003eA3\u003c/span\u003e (\u003cspan class=\"InternalRef\"\u003eappendix\u003c/span\u003e).\u003c/p\u003e\n \u003cp\u003eTable \u003cspan class=\"InternalRef\"\u003e1\u003c/span\u003e displays the descriptive statistics for the sample variables from the period 2000 to 2021. Scores on the synthetic index of economic freedom and its components range from 0 to 10, where 0 indicates less economic freedom and 10 signifies greater economic freedom. The average score for the economic freedom index in the sub-Saharan Africa (SSA) region is 6, which is approximately equivalent to the average score for the panel of countries covered by the index during the same period. On average, the private investment ratio is 11.53%, with a maximum value of 60.15% and a minimum of -32.91%. Additionally, the average annual GDP growth rate over the study period was 4.27%.\u003c/p\u003e\n \u003ctable id=\"Tab1\" border=\"1\"\u003e\n \u003ccaption language=\"En\"\u003e\n \u003cdiv class=\"CaptionNumber\"\u003eTable 1\u003c/div\u003e\n \u003cdiv class=\"CaptionContent\"\u003e\n \u003cp\u003eDescriptive statistics\u003c/p\u003e\n \u003c/div\u003e\n \u003c/caption\u003e\n \u003cthead\u003e\n \u003ctr\u003e\n \u003cth align=\"left\"\u003e\n \u003cp\u003eVariables\u003c/p\u003e\n \u003c/th\u003e\n \u003cth align=\"left\"\u003e\n \u003cp\u003eMean\u003c/p\u003e\n \u003c/th\u003e\n \u003cth align=\"left\"\u003e\n \u003cp\u003eStandard deviation\u003c/p\u003e\n \u003c/th\u003e\n \u003cth align=\"left\"\u003e\n \u003cp\u003eMin\u003c/p\u003e\n \u003c/th\u003e\n \u003cth align=\"left\"\u003e\n \u003cp\u003eMax\u003c/p\u003e\n \u003c/th\u003e\n \u003cth align=\"left\"\u003e\n \u003cp\u003eObservation\u003c/p\u003e\n \u003c/th\u003e\n \u003c/tr\u003e\n \u003c/thead\u003e\n \u003ctbody\u003e\n \u003ctr\u003e\n \u003ctd align=\"left\"\u003e\n \u003cp\u003eGross fixed capital formation\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e11.531\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e8.592\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e-32.91\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e60.15\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e902\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd align=\"left\"\u003e\n \u003cp\u003eEconomic freedom\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e5.884\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e0.809\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e2.9\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e8.23\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e812\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd align=\"left\"\u003e\n \u003cp\u003eGovernment size\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e6.681\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e1.162\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e1.87\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e9.26\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e902\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd align=\"left\"\u003e\n \u003cp\u003eLegal system\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e4.326\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e1.092\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e2.11\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e7.08\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e902\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd align=\"left\"\u003e\n \u003cp\u003eSound money\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e7.108\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e1.411\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e1.25\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e9.76\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e811\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd align=\"left\"\u003e\n \u003cp\u003eFreedom to trade\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e6.039\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e0.971\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e1.76\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e8.859\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e805\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd align=\"left\"\u003e\n \u003cp\u003eRegulation\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e5.57\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e1.018\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e2.53\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e8.140\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e902\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd align=\"left\"\u003e\n \u003cp\u003eReal GDP\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e4.05\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e4.84\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e-36.392\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e33.629\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e901\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd align=\"left\"\u003e\n \u003cp\u003ePrivate sector credit\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e19.922\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e22.966\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e0.002\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e142.422\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e815\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd align=\"left\"\u003e\n \u003cp\u003eFDI\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e4.343\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e8.019\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e-17.292\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e103.337\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e899\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd align=\"left\"\u003e\n \u003cp\u003ePolitical stability\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e-0.5\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e0.865\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e-2.699\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e1.283\u003c/p\u003e\n \u003c/td\u003e\n \u003ctd align=\"char\"\u003e\n \u003cp\u003e861\u003c/p\u003e\n \u003c/td\u003e\n \u003c/tr\u003e\n \u003c/tbody\u003e\n \u003c/table\u003e\n \u003cp\u003e\u003c/p\u003e\n \u003c/div\u003e\n \u003cdiv class=\"BlockQuote\"\u003e\n \u003cp\u003eSource: Authors based on AfDB socio-economic databases, 1960\u0026ndash;2022, Fraser Institute (Gwartney et al., \u003cspan class=\"CitationRef\"\u003e2023\u003c/span\u003e) and World Bank (\u003cspan class=\"CitationRef\"\u003e2023\u003c/span\u003e).\u003c/p\u003e\n \u003c/div\u003e\n\u003c/div\u003e\n\u003cdiv id=\"Sec10\" class=\"Section2\"\u003e\n \u003ch2\u003e3.2 Estimation procedure\u003c/h2\u003e\n \u003cdiv class=\"BlockQuote\"\u003e\n \u003cp\u003eAs illustrated in the Eq. 2, the inclusion of lagged private domestic investment on the right-hand side alongside the explanatory variables indicates the persistence of private investment over time. The presence of the lagged dependent variable among the explanatory variables renders the model dynamic, suggesting that an endogeneity issue is likely to arise due to the high probability of correlation between the lagged dependent variable and the error term. In such cases, standard econometric methods like ordinary least squares (OLS) or generalized least squares (GLS) are deemed inappropriate (Baltagi, \u003cspan class=\"CitationRef\"\u003e2013\u003c/span\u003e).\u003c/p\u003e\n \u003cp\u003eTo address endogeneity concerns, the literature has proposed two variants of the generalized method of moments (GMM) estimator for dynamic panels. The first variant is the difference GMM developed by Arellano and Bond (\u003cspan class=\"CitationRef\"\u003e1991\u003c/span\u003e), and the second is the system GMM method proposed by Blundell and Bond (\u003cspan class=\"CitationRef\"\u003e1998\u003c/span\u003e). The method proposed by Arellano and Bond (\u003cspan class=\"CitationRef\"\u003e1991\u003c/span\u003e) method involves transforming the model into first differences to eliminate specific effects\u0026mdash;namely, unobserved, time-invariant factors affecting the dependent variable. They suggest using level-lagged explanatory variables as instruments, which is valid under two key assumptions: first, that the error term is not serially correlated, and second, that the lagged explanatory variables are weakly exogenous (i.e., uncorrelated with future realizations of the error term). This approach is referred to as difference GMM. While this method addresses endogeneity bias, it may encounter issues when the explanatory variables are persistent, leading to weak instruments from lagged levels of the variables. Additionally, finite sample bias and a lack of precision in simulations have been documented (Arellano and Bover, \u003cspan class=\"CitationRef\"\u003e1995\u003c/span\u003e and Alonso-Borrego and Arellano, \u003cspan class=\"CitationRef\"\u003e1999\u003c/span\u003e). To mitigate these limitations, Arellano and Bover (\u003cspan class=\"CitationRef\"\u003e1995\u003c/span\u003e) and Blundell and Bond (\u003cspan class=\"CitationRef\"\u003e1998\u003c/span\u003e) proposed an alternative known as system GMM.\u003c/p\u003e\n \u003cp\u003eThe application of GMM methods necessitates two conditions: first, instrument validity, and second, the absence of second-order autocorrelation. Arellano and Bond (\u003cspan class=\"CitationRef\"\u003e1991\u003c/span\u003e), Arellano and Bover (\u003cspan class=\"CitationRef\"\u003e1995\u003c/span\u003e) and Blundell and Bond (\u003cspan class=\"CitationRef\"\u003e1998\u003c/span\u003e) have introduced tests for instrument validity, specifically the Sargan and Hansen over-identification tests. When the results of these tests are insignificant, it suggests that the instruments are not correlated with the residuals, thereby confirming their validity. Additionally, the Arellano-Bond AR(2) test must yield insignificant results to indicate the absence of second-order autocorrelation in the residuals.\u003c/p\u003e\n \u003cp\u003eIn line with existing empirical literature (Farhadi et al.2015; Su and Bui, \u003cspan class=\"CitationRef\"\u003e2017\u003c/span\u003e), we employ the system GMM estimator. This choice enables us to account for specific effects (unobserved heterogeneity) and address endogeneity bias. Furthermore, system GMM is more effective in overcoming the weaknesses related to instrument strength that are associated with the difference GMM estimator.\u003c/p\u003e\n \u003c/div\u003e\n\u003c/div\u003e"},{"header":"4 Empirical results and discussion","content":"\u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eThe results indicate a positive and significant effect of economic freedom on private domestic investment at the 10% level (Table \u003cspan refid=\"Tab2\" class=\"InternalRef\"\u003e2\u003c/span\u003e). The results indicate a positive and significant effect of economic freedom on private domestic investment at the 10% level. Gwartney (\u003cspan citationid=\"CR33\" class=\"CitationRef\"\u003e2009\u003c/span\u003e) illustrates this point by noting that from 1980 to 2005, nations with an average economic freedom score of 7 or above had a total investment to GDP ratio of 22.2%, compared to 18.9% for those scoring below 5.\u003c/p\u003e \u003cp\u003eExamining the components of the index reveals that the size of government, the legal system and property rights, as well as regulations governing business, labor, and credit markets, exert a positive and significant influence on private domestic investment (as measured by gross fixed capital formation, GFCF) at both the 10% and 5% levels. Conversely, the freedom to trade with the rest of the world has a negative and significant effect, while sound money does not show a significant impact.\u003c/p\u003e \u003cp\u003eThe positive influence of government size can be understood through the lens of public investment in infrastructure\u0026mdash;such as highways, electricity, schools, and health facilities\u0026mdash;which can enhance the marginal productivity of private capital, thus stimulating private domestic investment. This finding aligns with Su and Bui (\u003cspan citationid=\"CR58\" class=\"CitationRef\"\u003e2017\u003c/span\u003e), who also show a positive effect of government size on private investment. Regarding the legal system and property rights, we observe that increased protection against expropriation enhances private investors' confidence in the legal system. Consequently, such confidence encourages them to invest in secure environments. Ojah et al (\u003cspan citationid=\"CR51\" class=\"CitationRef\"\u003e2010\u003c/span\u003e) found that the confidence of Ugandan and Kenyan companies in the legal system positively affects their investment decisions, although the findings were less favorable for Tanzanian companies.\u003c/p\u003e \u003cp\u003eThe regulation positively affects the private investment ratio (as a percentage of GDP). In terms of the credit market, this effect may arise from a decline in public borrowing frequency in favor of private investors. Ben-Salha and Zmami (\u003cspan citationid=\"CR15\" class=\"CitationRef\"\u003e2019\u003c/span\u003e) reported a significant and positive effect of credit market regulation on domestic investment in the North Africa and Middle East (MENA) region at the 5% level. Moreover, easing administrative procedures for conducting business can accelerate and increase business creation. Efforts to fight corruption and reduce bureaucratic burdens enhance the business environment, thereby stimulating both general and domestic investment.\u003c/p\u003e \u003cp\u003eCiccone and Papaioannou (\u003cspan citationid=\"CR22\" class=\"CitationRef\"\u003e2007\u003c/span\u003e) argue that lower barriers to entrepreneurship\u0026mdash;measured by the number of procedures required to establish a new business\u0026mdash;are particularly crucial for business formation in rapidly changing industries with expanding global demand.\u003c/p\u003e \u003cp\u003eThe negative effect of trade on private domestic investment may stem from high tariff and non-tariff trade barriers or capital controls. Domestic companies that rely on importing raw materials and equipment may view these trade policies as additional costs that hinder their operations. Ben-Salha and Zmami (\u003cspan citationid=\"CR15\" class=\"CitationRef\"\u003e2019\u003c/span\u003e) found that the coefficient for the average tariff is negative and statistically significant at the 10% level, indicating that high tariff barriers on imported goods can diminish domestic investment.\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab2\" border=\"1\"\u003e \u003ccaption language=\"En\"\u003e \u003cdiv class=\"CaptionNumber\"\u003eTable 2\u003c/div\u003e \u003cdiv class=\"CaptionContent\"\u003e \u003cp\u003eBasic model estimates: GMM method in a system Variables Dependent variable: Gross fixed capital formation (GFCF) by the private sector\u003c/p\u003e \u003c/div\u003e \u003c/caption\u003e \u003ccolgroup cols=\"7\"\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c5\" colnum=\"5\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c6\" colnum=\"6\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c7\" colnum=\"7\"\u003e\u003c/div\u003e \u003cthead\u003e \u003ctr\u003e \u003cth align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/th\u003e \u003cth align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(1)\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(2)\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(3)\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(4)\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(5)\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(6)\u003c/p\u003e \u003c/th\u003e \u003c/tr\u003e \u003c/thead\u003e \u003ctbody\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eGDP growth\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e-0.003\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.036\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e-0.087\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.035\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.059\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e-0.148\u003csup\u003e\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(0.046)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(0.075)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(0.077)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(0.042)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(0.050)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(0.084)\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003ePrivate sector credit\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e-0.053\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e-0.016\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e-0.109\u003csup\u003e\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e-0.023\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.013\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e-0.074\u003csup\u003e\u0026lowast;\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(0.034)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(0.016)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(0.061)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(0.023)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(0.021)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(0.035)\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eFDI\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.053\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.053\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e0.079\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.053\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.116\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e0.120\u003csup\u003e\u0026lowast;\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(0.072)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(0.046)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(0.051)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(0.061)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(0.115)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(0.036)\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003ePolitical stability\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e-0.170\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e1.348\u003csup\u003e\u0026lowast;\u0026lowast;\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e-3.130\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.573\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e1.602\u003csup\u003e\u0026lowast;\u0026lowast;\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e0.221\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eEconomic freedom\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(0.736)\u003c/p\u003e \u003cp\u003e3.635\u003csup\u003e\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(0.476)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(2.804\u003cem\u003e)\u003c/em\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(0.610)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(0.501)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(0.633)\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eGovernment size\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(2.001)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e1.542\u003csup\u003e\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eLegal system\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(0.913)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e6.146\u003csup\u003e\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(3.710\u003cem\u003e)\u003c/em\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eSound money\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e1.419\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eFreedom of trade\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(1.156)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e-1.584\u003csup\u003e\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eRegulation\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(0.835)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e3.965\u003csup\u003e\u0026lowast;\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eConstant\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e-14.65\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e-5.972\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e-18.86\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e-3.484\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e16.36\u003csup\u003e\u0026lowast;\u0026lowast;\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(1.643)\u003c/p\u003e \u003cp\u003e-14.65\u003csup\u003e\u0026lowast;\u003c/sup\u003e\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(11.42)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(5.595\u003cem\u003e)\u003c/em\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(16.11)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(8.311)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(4.969\u003cem\u003e)\u003c/em\u003e\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(8.261)\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eComments\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e680\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e740\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e740\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e680\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e673\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e740\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eNumber of countries\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e41\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e41\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e41\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e41\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e41\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e41\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eTime fixed effects\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eCountry fixed effect\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eTest Hansen J\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.195\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.693\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e0.340\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.214\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.235\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e0.136\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eAR1\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eAR2\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.540\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.411\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e0.399\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.579\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.439\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e0.357\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eNumber of instruments (i)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e20\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e36\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e18\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e24\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e20\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e21\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eInstrument ratio \u003cem\u003er\u003c/em\u003e (n/i)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e2.05\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e1.13\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e2.27\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e1.70\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e2.05\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e1.95\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003c/tbody\u003e \u003c/colgroup\u003e \u003c/table\u003e\u003c/div\u003e \u003c/p\u003e \u003cp\u003eNote: robust standard errors are in brackets. *** ** * is the level of significance at the 1%, 5% and 10% thresholds, respectively. The Hansen statistic is greater than 10% and the p-values of AR (1) are less than 10% and the \u003cem\u003eP-values\u003c/em\u003e of AR (2) are all insignificant (absence of second-order autocorrelation), so the instruments are valid. Robust standard errors are in parentheses.\u003c/p\u003e \u003cp\u003e \u003cb\u003eRobustness test\u003c/b\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eIn this section, we employed an alternative estimation method to assess the robustness of our findings. Specifically, we utilized the instrumental variables method, namely two-stage least squares (IV-2SLS). The results from this analysis corroborate our previous findings, thereby confirming their robustness (see Table\u0026nbsp;\u003cspan refid=\"Tab3\" class=\"InternalRef\"\u003e3\u003c/span\u003e). The consistency of these results across different estimation techniques strengthens our confidence in the relationship between economic freedom and private domestic investment, as well as the significance of its components. This reinforces the notion that improvements in economic institutions and policies positively influence private investment in sub-Saharan Africa.\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e \u003cp\u003e \u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab3\" border=\"1\"\u003e \u003ccaption language=\"En\"\u003e \u003cdiv class=\"CaptionNumber\"\u003eTable 3\u003c/div\u003e \u003cdiv class=\"CaptionContent\"\u003e \u003cp\u003eBasic model estimation: alternative method \u003cb\u003eIV-2SLS\u003c/b\u003e\u003c/p\u003e \u003c/div\u003e \u003c/caption\u003e \u003ccolgroup cols=\"7\"\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c5\" colnum=\"5\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c6\" colnum=\"6\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c7\" colnum=\"7\"\u003e\u003c/div\u003e \u003cthead\u003e \u003ctr\u003e \u003cth align=\"left\" colname=\"c1\"\u003e \u003cp\u003eVariables\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colspan=\"6\" nameend=\"c7\" namest=\"c2\"\u003e \u003cp\u003eDependent variable: Gross fixed capital formation (GFCF) by the private sector\u003c/p\u003e \u003c/th\u003e \u003c/tr\u003e \u003c/thead\u003e \u003ctbody\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eGDP\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.0584\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.0233\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e-0.00347\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.0715\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.0843\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e-0.0217\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(0.0474)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(0.0607)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(0.0608)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(0.0498)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(0.0521)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(0.0606)\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003ePrivate sector credit\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.253***\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.315***\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e0.280***\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.283***\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.240***\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e0.279***\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(0.0482)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(0.0651)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(0.0670)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(0.0564)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(0.0642)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(0.0666)\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eIDE\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.00965\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.0896\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e0.0382\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.0375\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.182\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e0.0515\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(0.163)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(0.0550)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(0.0750)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(0.161)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(0.128)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(0.0749)\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003ePolitical stability\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.144\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.0633\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e-0.864\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.205\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.668\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e0.203\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(0.639)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(0.629)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(0.703)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(0.649)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(0.651)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(0.610)\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eEconomic freedom\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e5.306***\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e(1.089)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eGovernment size\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.300\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e(0.638)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eLegal system\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e3.959***\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e(1.143)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eSound money\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e1.370***\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e(0.466)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eFreedom to trade\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e-1.795**\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e(0.809)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e\u0026nbsp;\u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eRegulation\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e2.402***\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e\u0026nbsp;\u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e(0.682)\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eObservations\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e658\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e705\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e740\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e658\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e613\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e740\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eR-square\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.398\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.439\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e0.386\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.376\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.442\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e0.392\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eNumber of countries\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e41\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e41\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e41\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e41\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e39\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e41\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eCountry fixed effects\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eTime fixed effects\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003eYes\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eKleibergen-Paap rk\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e73.18\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e98.66\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e124.9\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e53.35\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e50.51\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e128.7\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eKleibergen\u0026ndash;Paap rk (p-value)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e0.000\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eCragg-Donald wald\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e262.3\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e69.77\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e544.2\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e168.3\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e76.72\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e176.9\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eJ Hansen statistics\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.811\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e1.413\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e6.68e-05\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.211\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.0213\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e2.612\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003eP-value of (J Hansen)\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e0.368\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e0.493\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e0.993\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0.646\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e0.989\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c7\"\u003e \u003cp\u003e0.106\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003c/tbody\u003e \u003c/colgroup\u003e \u003c/table\u003e\u003c/div\u003e \u003c/p\u003e Note: robust standard errors are in brackets. *** ** * is the level of significance at the 1%, 5% and 10% thresholds, respectively. The Hansen statistic is greater than 10% and the p-values of AR (1) are less than 10% and the P-values of AR (2) are all insignificant (absence of second-order autocorrelation), so the instruments are valid. Robust standard errors are in parentheses."},{"header":"5 Conclusion","content":"\u003cp\u003e \u003cdiv class=\"BlockQuote\"\u003e \u003cp\u003eIn this research, we examined the effect of economic freedom on private domestic investment on a panel of 41 SSA countries over the period 2000\u0026ndash;2021. To test this empirical relationship, we used the system GMMs.\u003c/p\u003e \u003cp\u003eThe results indicate that economic freedom positively affects domestic investment in SSA. Countries with greater economic freedom experience higher private domestic investment. This result indicates that the quality of economic institutions and policies is a fundamental determinant of private domestic investment. Furthermore, the results reveal that the components of economic freedom, namely the size of government, the legal system and property rights, as well as the regulation of business, labor and credit markets, are the components of economic freedom that also stimulate private domestic investment. On the other hand, freedom of trade affects it negatively.\u003c/p\u003e \u003cp\u003eTo improve the business environment and increase private domestic investment in Sub-Saharan Africa, public decision-makers need to improve economic institutions and policies. More specifically, countries need to increase and improve the quality of public spending. Sub-Saharan African countries also need to strengthen their legal systems, relax restrictions on capital movements and tariff barriers, and lay down a good regulatory environment business to stimulate private investment. To this end, countries should reduce administrative procedures and bureaucratic costs to make it easier to set up a business. Similarly, it is important to remove constraints on access to credit for domestic investors.\u003c/p\u003e \u003c/div\u003e \u003c/p\u003e"},{"header":"Declarations","content":"\u003ch2\u003eAuthor Contribution\u003c/h2\u003e\u003cp\u003eDr.Dia wrote the manuscript with support of Dr. Ouedraogo. Dr.Dia developed the methodology and performed the computations. Dr. Ouedraogo verified the analytical methods . Dr.Ouedraogo provided critical feedback and helped shape the research, analysis and manuscript.\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\n\u003cli\u003eAbel, A. B. (1983). Optimal investment under uncertainty. \u003cem\u003eThe American Economic Review\u003c/em\u003e, 73(1):228 233. \u003c/li\u003e\n\u003cli\u003eAboal, D., Noya, N., and Rius, A. (2014). 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Technical report\u003c/em\u003e, Washington D.C.: World Bank, Washington D.C.: World Bank.\u003c/li\u003e\n\u003c/ol\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":true,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Economic freedom, private domestic investment, sub-Saharan Africa","lastPublishedDoi":"10.21203/rs.3.rs-5382760/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-5382760/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis study investigates the effect of economic freedom on private domestic investment in Sub-Saharan Africa. Unlike the existing literature, it specifically focuses on the SSA region and considers the effect of the five components of the Fraser Institute's Index of Economic Freedom on private domestic investment. To this end, we use a panel of 41 SSA countries over the period 2000–2021 using the system GMM estimation method. The results show that economic freedom favors private domestic investment through the size of government, the legal system and property rights, as well as the regulation of the credit, labor and business markets. Conversely, the freedom to trade internationally has a negative effect. These results imply that SSA countries should enhance the size and quality of public investments, strengthen their legal frameworks, ease restrictions on capital flows and tariff barriers, and create a favorable regulatory environment for businesses to stimulate private investment.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eJEL classification\u003c/strong\u003e\u003cem\u003e : \u003c/em\u003eC82, E22, O43, O55, P16\u003c/p\u003e","manuscriptTitle":"Economic freedom and private domestic investment in sub-Saharan Africa","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2024-11-15 09:28:19","doi":"10.21203/rs.3.rs-5382760/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"48c6a2c3-76da-4709-bbe2-dd1c915c5434","owner":[],"postedDate":"November 15th, 2024","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[],"tags":[],"updatedAt":"2024-11-21T08:38:10+00:00","versionOfRecord":[],"versionCreatedAt":"2024-11-15 09:28:19","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-5382760","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-5382760","identity":"rs-5382760","version":["v1"]},"buildId":"qtupq5eGEP_6zYnWcrvyt","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}