DETERMINANTS OF PRIVATE INVESTMENT IN ZIMBABWE

The received wisdom about investment in Zimbabwe is that foreign excha nge shortages were the key constraint on private capital formation, an d that uncertainty about political developments, price controls and go vernment policy with respect to labour have also discouraged investmen t. A model of private investment is constructed for Zimbabwe, using a two-step Engle-Granger approach to deal with non-stationary variables. It is found that, in the long run, investment is constrained by the a vailability of finance, especially retained profits, and that it has b een deter-red by the external debt-to-GDP ratio. Controls, including f oreign exchange allocations, have affected the tinting of capital expe nditures rather than the desired stock of capital.