Determinants of investment in Namibia

Abstract

This paper presents an analysis of the determinants of investment in Namibia for the period 1971 to 2010. The results indicate that investment in Namibia can be raised by increasing real GDP, openness and financial development, and by decreasing the user cost of capital. Although saving has an expected positive coefficient, it is statistically insignificant. This suggests that saving is necessary, but not sufficient to accelerate investment in Namibia. The positive effect of effect of openness implies that increase in exports generated foreign exchange earnings necessary to purchase the imported capital goods and expand the market for domestic products. Increase in imports enabled the country to have greater access to investment goods in the international market and accelerates investment. A positive impact of financial development suggests that the financial sector is important in facilitating the channeling of resources from savers to investment activities that offer high return. The negative effect of user cost of capital implies that investment in Namibia can be accelerated by reducing the cost of capital.