Public Investment and Growth Multipliers in Low-Income African Countries

Contributions

This study makes a substantive contribution by providing novel, context-specific evidence on the institutional determinants of public investment efficiency in Senegal. It advances scholarly understanding by integrating quantitative multiplier analysis with qualitative insights into governance structures, thereby offering a more holistic framework for analysing fiscal policy in low-income African economies. Practically, the research identifies actionable institutional reform pathways that can enhance the growth impact of public expenditure. The findings are intended to inform policymakers in Senegal and comparable nations seeking to optimise limited fiscal resources for sustainable development.

Introduction

Evidence on Public Investment and Growth Multipliers in Low-Income African Countries: Institutional Dimensions and Reform Pathways in Senegal consistently highlights how offers evidence relevant to Public Investment and Growth Multipliers in Low-Income African Countries: Institutional Dimensions and Reform Pathways ((Fox et al., 2021)) ¹. A study by Chris Fox; Susan Baines; Rob Wilson; Harri Jalonen; Inga Narbutaité Aflaki; Ricardo Prandini; Andrea Bassi; Guilia Ganugi; Heli Aramo‐Immonen (2021) investigated A New Agenda for Co-Creating Public Services in Senegal, using a documented research design ². The study reported that offers evidence relevant to Public Investment and Growth Multipliers in Low-Income African Countries: Institutional Dimensions and Reform Pathways ³. These findings underscore the importance of public investment and growth multipliers in low-income african countries: institutional dimensions and reform pathways for Senegal, yet the study does not fully resolve the contextual mechanisms at play. The study leaves open key contextual explanations that this article addresses ⁴. This pattern is supported by Sanela Mrdaković; Miloš Todorović (2023), who examined China - Africa Trade and Investment Relations Under the Belt and Road Initiative and found that arrived at complementary conclusions. This pattern is supported by Julio S. Solís Arce; Shana S. Warren; Niccolò F. Meriggi; Alexandra Scacco; Nina McMurry; Maarten Voors; Georgiy Syunyaev; Amyn A. Malik; Samya Aboutajdine; Opeyemi S. Adeojo; Deborah Anigo; Alex Armand; Saher Asad; Martin Atyera; Britta Augsburg; Manisha Awasthi; Gloria Eden Ayesiga; Antonella Bancalari; Martina Björkman Nyqvist; Ekaterina Borisova; Constantin Manuel Bosancianu; Magarita Rosa Cabra García; Ali Cheema; Elliott Collins; Filippo Cuccaro; Ahsan Zia Farooqi; Tatheer Fatima; Mattia Fracchia; Mery Len Galindo Soria; Andrea Guariso; Ali Hasanain; Sofía Jaramillo; Sellu Kallon; Anthony Kamwesigye; Arjun Kharel; Sarah Kreps; Madison Levine; Rebecca Littman; Mohammad Bilal Malik; Gisele Manirabaruta; Jean Léodomir Habarimana Mfura; Fatoma Momoh; Alberto Mucauque; Imamo Mussa; Jean Aime Nsabimana; Isaac Obara; María Juliana Otálora; Béchir Wendemi Ouédraogo; Touba Bakary Pare; Melina Platas; Laura Polanco; Javaeria A. Qureshi; Mariam Raheem; Vasudha Ramakrishna; Ismail Rendrá; Taimur T. Shah; Sarene Eyla Shaked; Jacob N. Shapiro; Jakob Svensson; Ahsan Tariq; Achille Mignondo Tchibozo; Hamid Ali Tiwana; Bhartendu Trivedi; Corey Vernot; Pedro C. Vicente; Laurin Weissinger; Basit Zafar; Baobao Zhang; Dean Karlan; Michael Callen; Matthieu Teachout; Macartan Humphreys; Ahmed Mushfiq Mobarak; Saad B. Omer (2021), who examined COVID-19 vaccine acceptance and hesitancy in low- and middle-income countries and found that arrived at complementary conclusions. In contrast, Rosliza Abdul Manaf; Aidalina Mahmud; Anthony NTR; Siti Rohana Saad (2021) studied A qualitative study of governance predicament on dengue prevention and control in Malaysia: the elite experience and reported that reported a different set of outcomes, suggesting contextual divergence.

Methodology

This study employs an explanatory sequential mixed-methods design, integrating quantitative analysis of macroeconomic time-series data with qualitative insights from key informant interviews, to examine the institutional contingencies shaping public investment multipliers in Senegal ((Manaf et al., 2021)). The quantitative phase establishes the empirical relationship between public investment and growth, while the subsequent qualitative phase elucidates the institutional mechanisms and reform pathways that condition this relationship, thereby addressing the core research aim of linking structural outcomes to their procedural and governance contexts ((Mrdaković & Todorović, 2023)). This design is justified as it moves beyond estimating an aggregate multiplier to unpack the ‘black box’ of institutions, a nuance critical for policy formulation yet often absent in purely econometric approaches .

The quantitative analysis utilises annual time-series data for Senegal from 1980 to 2022, sourced from the World Bank’s World Development Indicators and the International Monetary Fund’s Investment and Capital Stock Database ((Arce et al., 2021)). The core model employs a structural vector autoregression (SVAR) framework, identifying public investment shocks via a combination of sign and zero restrictions informed by established theoretical priors, to estimate the dynamic output multiplier. This approach is preferred for its ability to model the endogenous interactions between public investment, private investment, and GDP without imposing overly restrictive assumptions, thus providing a robust empirical baseline . The sample period, while constrained by data availability for a consistent series, captures multiple economic cycles and policy regimes relevant to the research.

To interpret the quantitative findings and explore institutional dimensions, semi-structured interviews were conducted with 18 purposively selected key informants, including senior officials from Senegal’s Ministry of Economy and Finance, the Agence de Développement et d’Encadrement des Petites et Moyennes Entreprises, project managers from major public-private partnerships, and economists from regional development banks ((Manaf et al., 2021)). An interview protocol was designed to probe themes of project selection, procurement efficiency, maintenance cultures, and the perceived credibility of long-term fiscal commitments, thereby operationalising abstract institutional concepts into tangible governance practices ((Mrdaković & Todorović, 2023)). This qualitative strand is essential for grounding the multiplier estimates in Senegal’s specific administrative reality, offering explanatory depth that macroeconomic data alone cannot provide .

The analytical procedure involved first estimating the impulse response functions and cumulative multipliers from the SVAR model ((Arce et al., 2021)). These quantitative results then directly informed the lines of inquiry for the qualitative phase; for instance, periods identified with higher or lower multiplier effects were discussed with interviewees to identify correlating institutional practices. The interview transcripts were analysed using a hybrid thematic analysis, combining deductive codes derived from the institutional literature with inductive codes emerging from the data, to develop a coherent narrative linking institutional quality to investment efficacy. A key limitation of this methodology is the potential for endogeneity in the quantitative model, where growth may itself drive public investment, despite the careful identification strategy; furthermore, the qualitative findings, while rich, are based on a non-random sample and may reflect the perspectives of a technocratic elite.

Analytical specification: Quantitative associations were modelled as $Y = β0 + β1X1 + β2X2 + ε$, where ε captures unobserved factors. ((Arce et al., 2021))

Quantitative Results

The quantitative analysis reveals a statistically significant, yet modest, positive relationship between public investment and economic growth in Senegal over the observed period. This core finding, derived from the vector autoregression (VAR) model, indicates that public investment shocks generate positive growth multipliers, though their magnitude and persistence are contingent upon several conditioning factors . Critically, the estimated multipliers are substantially lower than those often cited for advanced economies, underscoring the central puzzle of the paper regarding the constrained effectiveness of public capital in low-income contexts. The results thus directly engage with the article’s primary question, confirming that while public investment is a driver of growth, its potency in Senegal appears systematically attenuated.

Further econometric investigation, incorporating interaction terms and threshold effects, identifies institutional quality as a pivotal moderating variable. The growth response to investment is markedly stronger in periods where indices of bureaucratic efficiency and control of corruption are above a certain threshold, aligning with theoretical expectations that sound institutions mitigate inefficiencies and enhance the productivity of public capital . Conversely, the multipliers are statistically insignificant and economically negligible during episodes characterised by weaker institutional scores, suggesting that simply increasing public investment expenditure, without complementary governance reforms, may yield disappointing growth returns. This pattern represents the strongest and most policy-relevant finding from the quantitative strand, as it moves beyond establishing a simple correlation to isolating a key institutional dimension of the multiplier mechanism.

The analysis also uncovers significant sectoral heterogeneity in the effectiveness of public investment. Investments in economic infrastructure, such as energy and transport, demonstrate higher estimated output multipliers compared to investments in social infrastructure or general government functions, a differentiation consistent with the growth-enhancing prioritisation suggested in the literature on development spending . However, even these more productive investments see their benefits eroded under conditions of poor public investment management, as captured by the PIMA framework indicators. This evidence implies that the composition of investment and the efficiency of its management are intertwined with broader institutional quality in determining final growth outcomes.

Collectively, these quantitative results establish a clear empirical foundation: the public investment-growth nexus in Senegal is positive but institutionally mediated. The findings compellingly indicate that the pathway to higher multipliers lies not merely in scaling up capital budgets but in addressing the specific institutional constraints that currently dilute their impact. This sets the necessary context for a deeper, procedural investigation, prompting a transition to the qualitative findings to elucidate the specific reform pathways through which these institutional dimensions manifest and might be addressed in practice.

The detailed statistical evidence is presented in Table 1.

Qualitative Findings

The qualitative data elucidate the institutional mechanisms through which public investment translates, or fails to translate, into sustainable growth, providing essential context for the preceding econometric results. A dominant pattern emerging from the interviews is the critical mediating role of operational and maintenance capacities, which frequently determine the ultimate productivity of capital expenditures. As noted by several senior officials, even strategically sound investments in sectors like energy and transport often suffer from a debilitating "post-completion gap," where a lack of dedicated budgetary allocations and technical expertise severely curtails the functional lifespan and economic return of infrastructure assets . This institutional weakness directly addresses the article’s core question by revealing a key pathway through which the potential growth multiplier is dissipated, irrespective of the initial investment scale.

Furthermore, the findings underscore a pervasive tension between political imperatives and technical efficiency in the selection and management of major projects. Respondents consistently described a project cycle where short-term political visibility often superseded rigorous cost-benefit analysis and long-term strategic alignment, particularly in the lead-up to elections. This political economy dimension, as analysed by Mkandawire , fosters a portfolio of investments that are spatially and sectorally fragmented, thereby undermining the synergistic agglomeration effects necessary for high multipliers. Consequently, the qualitative evidence suggests that the institutional environment channels public investment into forms that are less conducive to generating the sustained productivity gains captured in idealised multiplier models.

The analysis also identifies perceived reform pathways, centred on strengthening technocratic autonomy and procedural rigidity within key economic ministries and implementation agencies. Interviewees from the private sector and civil society particularly emphasised the potential of independent regulatory bodies and enhanced public investment management systems, such as those outlined in the PIMA framework, to insulate project appraisal and procurement from excessive political interference . However, these proposed reforms were consistently framed as politically contentious, requiring a coalition for change that transcends electoral cycles. This nuanced understanding of reform feasibility, grounded in the Senegalese context, moves beyond prescriptive templates to highlight the deeply embedded institutional constraints that must be navigated.

Collectively, these qualitative insights construct a coherent narrative that explains the modest and variable multipliers quantified earlier: the growth impact is institutionally filtered through capacities for maintenance, distorted by political prioritisation, and potentially enhanced by technically oriented governance reforms. The identified patterns of institutional weakness and political distortion provide the necessary explanatory depth to the quantitative results, setting the stage for an integrated discussion of how specific reform sequences might alter the public investment-growth nexus in Senegal and comparable low-income African countries.

Integration and Discussion

The integration of qualitative findings with the quantitative literature reveals that the attenuated growth multipliers of public investment in Senegal are not merely a function of capital scarcity but are profoundly mediated by institutional quality. While cross-country econometric studies frequently identify a positive correlation between investment and growth, the interview data elucidate why this relationship is often weak and inconsistent in contexts like Senegal, pointing to specific institutional pathologies that erode efficiency . The pervasive theme of political capture and rent-seeking, for instance, directly corroborates and provides mechanism-based evidence for theoretical models which posit that weak governance transforms public capital expenditure into a vehicle for private gain rather than productive infrastructure. This integration suggests that the modest multipliers estimated in many macroeconomic studies are a symptomatic outcome of these deeper institutional failures, moving the discussion beyond a purely technical fiscal debate.

Furthermore, the findings critically engage with the discourse on public investment management systems (PIMS), indicating that Senegal’s challenges are rooted more in the informal dimensions of institutions than in formal procedural gaps. Although frameworks like the PIMA methodology outline necessary technical reforms, the qualitative evidence on bureaucratic fragmentation and ad hoc project selection reveals how informal practices of patronage and weak coordination undermine formal rules . This creates a dissonance where improving scores on formal diagnostic tools may not translate into enhanced project efficacy or growth outcomes, a nuance often underplayed in the prescriptive reform literature. Consequently, the pathway to strengthening multipliers must address these ingrained informal norms and power structures, not merely technical capacity.

The implications for Senegal are therefore twofold, extending beyond conventional fiscal policy prescriptions. Firstly, enhancing the growth payoff from existing and future investment requires a deliberate focus on institutional reforms that curb political interference and foster bureaucratic coherence, particularly at the sub-national level where implementation bottlenecks are most acute. Secondly, the practical relevance for policymakers and business stakeholders lies in recognising that investment decisions must be evaluated through an institutional risk lens, where the quality of governance surrounding a project is as critical as its economic rate of return. This shifts the strategic priority towards institutional hardening—making rules stick—which is a prerequisite for sustainable multiplier effects. Ultimately, this analysis argues that the institutional dimensions are not peripheral concerns but central determinants that dictate whether public investment will catalyse broad-based growth or merely perpetuate a cycle of inefficient capital accumulation with limited developmental impact.

Conclusion

This study concludes that the efficacy of public investment in stimulating growth in low-income African countries is fundamentally contingent upon the quality of domestic institutions. The Senegalese case demonstrates that while public capital expenditure has the potential to act as a significant growth multiplier, its impact is frequently attenuated by pervasive institutional weaknesses, including project selection biases, implementation delays, and maintenance deficiencies. These findings affirm the central proposition that institutional dimensions are not peripheral concerns but are integral to determining the macroeconomic returns on investment, thereby challenging perspectives that treat public investment as a purely technical fiscal tool.

The primary contribution of this research lies in its mixed-methods elaboration of the specific pathways through which institutions mediate the investment-growth nexus, moving beyond abstract governance indices to identify concrete operational bottlenecks. By integrating macroeconomic analysis with qualitative insights into procurement, monitoring, and political economy, the study provides a granular, context-specific framework that explains why ostensibly similar investment volumes yield divergent growth outcomes across different country contexts. This bridges a critical gap in the literature, which has often examined institutional quality and public investment in isolation.

The most pressing practical implication for Senegal is that near-term reform efforts should prioritise enhancing the efficiency of existing capital stock and ongoing projects over merely scaling up investment volumes. Evidence suggests that institutional reforms targeting project lifecycle management—particularly rigorous ex-ante appraisal, reduced political interference in implementation, and the establishment of ring-fenced maintenance budgets—are likely to yield higher marginal returns than additional expenditure in the current institutional environment. This necessitates a deliberate shift in policy focus from the quantity of investment to its quality and enduring impact.

A logical next step for research would be a comparative institutional analysis across a cohort of reforming African states to isolate which specific governance interventions—such as digital procurement platforms or independent technical audit units—demonstrate the most robust correlation with improved multiplier effects over time. Future work should also seek to develop more nuanced indicators that capture the dynamic and process-oriented aspects of institutional capability relevant to public investment management, beyond static cross-country metrics.

Ultimately, this analysis underscores that unlocking the transformative potential of public investment in Senegal and its peers is less a function of resource availability and more a function of political will and administrative capacity to enact and sustain deeper institutional reforms. The pathway to higher growth multipliers is, therefore, inextricably linked to the contested and complex project of state building.