Public Investment and GDP Growth in Developing and Advanced Countries: A Panel Data Analysis

Hicham GOUMRHAR, Youssef OUKHALLOU

Abstract


Abstract. This research paper examines the differences between developing and advanced countries in terms of public investment’s impact on economic growth. In this regard, we investigate whether or not the macroeconomic impact of government investment spending is tributary to the degree of private-public capital substitutability and the level of the capital-to-GDP ratio. In this perspective, we use a panel data model for two groups of countries that include respectively five advanced economies and five developing ones. Our study provides empirical evidence that public investment expenditures have a larger influence on GDP’s evolution in developing countries. Our results also suggest that public investment spending is relatively counterproductive in advanced economies, most likely because of high levels of crowding out; the latter are driven by public-private capital substitutability and the advanced position of these countries in terms of transitional dynamics. The analysis in this paper also sheds the light on efficiency, as a concept that is significantly linked to the level of corruption.

Keywords. GDP growth, Public investment, Crowding out, Panel data.

JEL. C33, H54, O47.


Keywords


GDP growth; Public investment; Crowding out; Panel data.

Full Text:


References


Arslan, Ü. & Saglam, Y. (2011). The relationship between corruption and public investment: The case of Turkey, Sosyal Bilimler Enstitüsü Dergisi, 20(2), 365-378.

Aschauer, D.A. (1989). Is public expenditure productive?, Journal of Monetary Economics, 23(2), 177-200. doi. 10.1016/0304-3932(89)90047-0

Barro, R.J. (1974), Are government bonds net wealth?, Journal of Political Economy, 82(6), 1095-1117. doi. 10.1086/260266

Barro, R.J. (1990). Government spending in a simple model of endogenous growth, Journal of Political Economy, 98(5), S103-S125. doi. 10.1086/261726

Blanchard, O. (1985), Debt, deficits, and finite horizons, Journal of Political Economy, 93(2), 223-247. doi. 10.1086/261297

Boughzala, M., Chatta W., El Marzougui E., & Zidi F. (2007). Dépenses publiques, croissance et pauvreté régionales en Tunisie: Une microsimulation séquentielle, Poverty and Economic Policy (PEP) Report, May.

Casero, P.A., & Varoudakis A. (2004). Growth, private investment, and the cost of doing business in Tunisia: A comparative perspective, World Bank Working Paper Series, No.34, February. doi. 10.2139/ssrn.938039

Gali, J., Vallés J., & Lopez-Salido, J.D. (2007), Understanding the effects of government spending on consumption, Journal of the European Economic Association, 5(1), 227–270. doi. 10.1162/jeea.2007.5.1.227

Ghani, E., & Din, M. (2006). The impact of public investment on economic growth in Pakistan, The Pakistan Development Review, 45(1), 87-98.

Gonand, F. (2007). The impact on growth of higher efficiency of public spending on schools, OECD Economic Department Working Paper, No.547. doi. 10.1787/283634243573

Hemming, R., Kell, M., & Mahfouz, S. (2002). The effectiveness of Fiscal Policy in stimulating Activity: A review of the literature, IMF Working Paper, No.02/208. doi. 10.5089/9781451874716.001

IMF, (2015). Making public investment more efficient, IMF Staff Report, June, Washington D.C.

Ismihan, M., Metin-Özcan K., & Tansel, A. (2002). Macroeconomic instability, capital accumulation and growth: The case of Turkey, 1963-1999, Bilkent University Working Paper, doi. 10.2139/ssrn.441180

Kamps, C. (2004). The dynamic effects of public capital: VAR evidence for 22 OECD countries, Kiel Institute, Working Paper, No.1224. doi. 10.1007/s10797-005-1780-1

Khan, M.S. (1996). Government investment and economic growth in the developing world, The Pakistan Development Review, 35(4), 419-439.

Lucas, R.E.Jr. (1988). On the mechanics of economic development, Journal of Monetary Economics, 22(1), 3-42. doi. 10.1016/0304-3932(88)90168-7

Milbourne, R., Otto, G., & Voss, G. (2003). Public investment and economic growth, Applied Economics, 35(5), 527-540. doi. 10.1080/0003684022000015883

Miller, N.J., & Tsoukis, C. (2001). On the optimality of public capital for long-run economic growth: Evidence from panel data, Applied Economics, 33(9), 1117-1129. doi. 10.1080/00036840122449

Mittnik, S., & Neumann, T. (2001). Dynamic effects of public investment: Vector autoregression evidence from six industrialized countries, Empirical Economics, 26(2), 429-446. doi. 10.1007/s001810000064

Oukhallou, Y. (2016). Analyzing economic growth: What role for public investment?, Journal of Economics Bibliography, 3(1), 71-99. doi. 10.1453/jeb.v3i1.692

Perotti, R. (2004). Public investment: another (different) look, IGIER, Working Paper No.277. doi. 10.2139/ssrn.637190

Reynolds, L.G. (1985). Economic Growth in the Third World, 1850–1980, New Haven: Yale University Press. doi. 10.2307/20042488

Reynolds, L.G. (1994). Government and economic growth, in G.M. Meier (Ed.), From Classical Economics to Development Economics, (99.226-241), New York: St Martin’s Press. doi. 10.1007/978-1-349-23342-7_14

Romer, P.M. (1986). Increasing returns and long-run growth, Journal of Political Economy, 94(5), 1002–1037. doi. 10.1086/261420

Romer, P.M. (1990). Endogenous technological change, Journal of Political Economy, 98(5, Part 2), S71–S102. doi. 10.1086/261725

Romer, P.M. (1993). Idea gaps and object gaps in economic development, Journal of Monetary Economics, 32(3), 543-573. doi. 10.1016/0304-3932(93)90029-f

Solow, R.M. (1956). A contribution to the theory of economic growth, Quarterly Journal of Economics, 70(1), 65-94. doi. 10.2307/1884513

Stern, N. (1991). The determinants of growth, The Economic Journal, 101(404), 122-133. doi. 10.2307/2233847

Sturm, J.E., & De Haan, J. (1995). Is public expenditure really productive? New evidence for the USA and the Netherlands, Economic Modeling, 12(1), 60–72. doi. 10.1016/0264-9993(94)p4156-a

Swaby, R. (2007). Public investment and growth in Jamaica, A Bank of Jamaica Working Paper. [Retrieved from].

Swan, T.W. (1956). Economic growth and capital accumulation, Economic Record, 32(2), 334–361. doi. 10.1111/j.1475-4932.1956.tb00434.x

Voss, G. (2002). Public and private investment in the United States and Canada, Economic Modelling, 19(4), 641-664. doi. 10.1016/s0264-9993(00)00074-2

Warner, A.M. (2014). Public investment as an engine of growth, International Monetary Fund Working Paper, No.14/148. doi. 10.5089/9781498378277.001




DOI: http://dx.doi.org/10.1453/jeb.v4i1.1230

Refbacks

  • There are currently no refbacks.


.......................................................................................................................................................................................................................................................................................................................................

Journal of Economics Bibliography - J. Econ. Bib.  - JEB - www.kspjournals.org

ISSN: 2149-2387. Editor : editor-jeb@kspjournals.org   Secretarial: secretarial@kspjournals.org   Istanbul - Turkey.

Copyright © KSP Journals