The Impact of Sectoral Investment on Economic Growth: Evidence from Algeria using Static Panel Data Models

Year 2024, , 12 - 21, 26.06.2024

Kamel Mahali

https://doi.org/10.26650/ekoist.2024.40.1249645

Abstract

This study aims to measure the impact of sectoral investment on economic growth in Algeria through an econometric model including a panel of eight key sectors over a 25-year period from 1996 to 2020. The study uses static panel data models based on several economic variables, where the dependent variable is Gross Domestic Product (GDP) and the independent variables are Gross Fixed Capital Formation (GFCF) and Compensation of Employees (COE). The results indicate that the fixed effects model is the appropriate model; i.e., the investment in the different sectors does not have the same impact on economic growth in Algeria. After examining the validity of the fixed effects model, it was found that it suffers from cross-sectional dependence, autocorrelation, and heteroscedasticity of errors. This complication was eliminated by using fixed effects regression models with robust Driscoll and Kraay standard errors.

Keywords

Sectoral investment, economic growth, fixed effects model, random effects model, pooled data, Algeria

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