DOES SUB-SAHARAN AFRICA'S RAPID POPULATION GROWTH HAVE POSITIVE OR NEGATIVE EFFECTS ON AGGREGATE DOMESTIC INVESTMENT?

Abstract

This study examines the effect of population growth on aggregate domestic investments in 45 Sub-Saharan African (SSA) countries over the period 2000–2020. It applies the Quantile Method of Moments with fixed effects (i.e., MM-QR), which has the ability to identify both negative and positive effects while controlling for trade, HIV/AIDS prevalence, and economic growth. The findings show that SSA’s rapid population growth has a positive and statistically significant effect on aggregate domestic investments. Findings from this study show that an increase in population growth in the 10th to 60th quantiles is associated with an increase of domestic investment in SSA. This suggests that, as the population grows in SSA, it generates demand for domestic investments such as healthcare services, education, and other social services. Our findings also show that trade is positive and significant across all quantiles (10th to 90th). We find evidence that disease risks, such as the prevalence of HIV/AIDS, slowed the increase in domestic investment in the region across all quantiles (10th to 90th). We conclude by arguing that, since SSA's population growth will double in the near future, the region is bound to become world's next investment hub. In order to enable long-term domestic investments in the region, future policy options should take the challenges of population growth into account.