Impact of German Sources of Capital on the Namibian Economy

Abstract

This work examines the impact of German sources of capital on the Namibian economy. Two sets of equations are tested. The first set tests the effect that German development assistance and German capital goods have had on domestic GDP. The second set tests the effect of German development assistance on the Namibian government’s capital formation outlays. The German independent variables are subsequently compared to global sources of capital in order to determine whether the German sources demonstrate a comparatively higher significance. Furthermore, the effects of official development assistance are disaggregated by type to test for aid’s fungibility. This analysis enables us not only to determine the direct impact of German sources of capital on the Namibian economy but also the extent to which official development assistance impacts the government’s investment behavior. We find that German development assistance has practically no effect on Namibian GDP. However, German development aid does have a statistically significant effect on the Namibian government’s level of annual expenditure on capital formation. Our results lead to the conclusion that German development aid has the potential, through public investment, to exert a positive influence over the Namibian economy. Further research will need to explore the conditions under which this potential can be fulfilled