Abstract
Abstract. This paper discusses the role of public investment in the determination of output growth from different theoretical and empirical points of view. The light is shed on the factors that allegedly explain the success and/or the failure of public investment policies in enhancing productivity and supporting GDP, based on a review of empirical evidence in advanced and developing economies. The downstream objective is to provide decision makers with a set of general rules-of-thumb that are likely to help them improve the macroeconomic returns of public investment. The latter are found to be significantly influenced by efficiency and profitability-based selectivity of investment projects. Countries with a relatively low capital-labor ratio usually have higher public and private capital profitability, while the public-private investment substitutability increases the likelihood of crowding out effects. The paper also gives hints on the possible existence of an optimal growth-maximizing level of public investment.
Keywords. GDP growth, Public investment, Productivity, Private investment, Development.
JEL. E62, H54, O40.References
Abramovitz, M. (1986). Catching up, forging ahead, and falling behind, Journal of Economic History, 46(2), 385-406. doi. 10.1017/S0022050700046209
Achy, L. (2011). Tunisia’s Economic Challenges, The Carnegie papers, December
Afonso, A., Schuknecht L., & Tanzi, V. (2005). Public sector efficiency: An international comparison, Public Choice, 123(3-4), 321-347. doi. 10.1007/s11127-005-7165-2
Agénor P-R., & Montiel P.J. (1996). Development Macroeconomics, Princeton University Press, Princeton
Arrow, K.J. (1962). The economic implications of learning by doing, Review of Economic Studies, 29(3), 155-173. doi. 10.2307/2295952
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
Bardhan, P. (1997). Corruption and development: A review of issues, Journal of Economic Literature, 35(3), 1320-1346.
Barro, R.J. (1974). Are government bonds net wealth?, Journal of Political Economy, 82(6), 1095-1117. doi. 10.1086/260266
Barro, R.J. (1979). Second thoughts on Keynesian economics, American Economic Review, 69(2), 54-59.
Barro, R.J. (1990). Government spending in a simple model of endogenous growth, Journal of Political Economy, 98(5), 103-125. doi. 10.1086/261726
Barro, R.J. (1997). Determinants of economic growth: a cross-country empirical study, MIT Press, Massachusetts.
Berg A., Buffie E.F., Pattillo C., Portillo R., Presbitero A., & Zanna L-F., (2015). Some Misconceptions about Public Investment Efficiency and Growth, IMF Working Paper No. WP/15/272, December
Biehl, D. (1991). The role of infrastructure in regional policy, European Research in Regional Science, Vol. 1, London.
Blanchard O. (1985). Debt, deficits, and finite horizons, Journal of Political Economy, 93(2), 223-247. doi. 10.1086/261297
Blanchard O., & Johnson D.R. (2013). Macroeconomics, Sixth edition, London: Pearson Education, United Kingdom.
Blanchard, O. & Perotti, R. (2002). An empirical characterization of the dynamic effects of changes in government spending and taxes on output, Quarterly Journal of Economics, 117(4), 1329-1368. doi. 10.1162/003355302320935043
Boughzala, M., Chatta W., ElMarzougui E., & Zidi, F. (2007). Dépenses publiques, croissance et pauvreté régionales en Tunisie: Une microsimulation séquentielle, Poverty and Economic Policy (PEP) Report, May.
Buchanan, J.M. (1976). Barro on the Ricardian equivalence theorem, Journal of Political Economy, 84(2), 337-342. doi. 10.1086/260436
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.
Chow, G. (1993). Capital formation and economic growth in China, Quarterly Journal of Economics, 108(3), 809-842. doi. 10.2307/2118409
Crafts, N.F.R. (2003). Is economic growth good for Us?, World Economics, 4(3), 35-46.
Domar, E.D. (1946). Capital expansion, rate of growth and employment, Econometrica, 14(2), 137-147. doi. 10.2307/1905364
Fagerberg, J. (1994). Technology and international differences in growth rates, Journal of Economic Literature, 32(3), 1147-1175.
Fosu A.K., Getachew Y.Y., & Ziesemer T. (2011). Optimal public investment, growth, and consumption: Evidence from African countries, Maastricht Economic and social Research Institute on Innovation and Technology (UNU-MERIT), Working paper No 51, Maastricht
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.
Giavazzi, F., & Pagano, M. (1990). Can severe fiscal contractions be expansionary? Tales of Two Small European Countries, NBER Macroeconomics Annual 1990, edited by O. J. Blanchard and S. Fischer. doi. 10.3386/w3372
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
Gupta, S., Kangur A., Papageorgiou, C., & Wane, A. (2014). Efficiency-adjusted public capital and growth, World Economic Development, 57, 164–178. doi. 10.1016/j.worlddev.2013.11.012
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
Hirschmann, A.O. (1958). The strategy of economic development, Yale University Press, New Haven, CT.
International Monetary Fund –IMF- (2014a), Tunisia: First and Second Reviews under the Stand-By Arrangement, IMF Country Report No. 14/50, February, Washington
International Monetary Fund –IMF- (2014b), Is it time for an infrastructure push? The macroeconomic effects of public investment, in World Economic Outlook, October 2014, Legacies, Clouds, Uncertainties, Chapter 3: October, pp. 75-114
Ismihan, M., Metin-Özcan K., & Tansel, A. (2002). Macroeconomic Instability, Capital Accumulation and Growth: The Case of Turkey, 1963-1999, Bilkent University Working Paper.
Johansen, L. (1959). Substitution versus fixed production coefficients in the theory of economic growth: A synthesis, Econometrica, 27(2), 157-175. doi. 10.2307/1909440
Kamps, C. (2004). The dynamic effects of public capital: VAR evidence for 22 OECD countries, Kiel Institute, Working Paper No. 1224.
Khan, M.S. (1996). Government investment and economic growth in the developing World, The Pakistan Development Review, 35(4), 419-439.
Kormendi, R.C., & Merguire, P.G. Meguire (1985). Macroeconomic determinants of growth, Journal of Monetary Economics, 32(3), 485-512. doi. 10.1016/0304-3932(93)90027-D
Levacic, R., & Rebmann, A. (1982). An introduction to Keynesian-Neoclassical controversies. 2nd edition, ELBS/Macmillan, United Kingdom
Lucas, R.E. (1988). On the mechanics of economic development, Journal of Monetary Economics, 22(1), 3-42. doi. 10.1016/0304-3932(88)90168-7
Mankiw N.G. (2010). Macroeconomics, 7th edition, Worth Publishers, New York
Mankiw, N.G. (1995). The Growth of Nations, Brookings Papers on Economic Activity.
Mauro, P. (1996). The effects of corruption on growth, investment, and government expenditure, IMF Working Paper No. WP/96/98, September
Mauro, P. (2004). The persistence of corruption and slow economic growth, IMF Staff Papers, 51(1), 1-18.
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. 10.1080/00036840010003258
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
Mountford, A., & Uhlig, H. (2004). What are the effects of fiscal policy shocks?, Working Paper, Humboldt University Berlin
Nelson, R.R. (1964). Aggregate production functions and medium-range growth projections, The American Economics Review, 54(5), 575-606.
Parente, S.L. & Prescott, E.C. (1999). Monopoly rights: A barrier to riches, The American Economic Review, 89(5), 89(5), 1216-1233. doi. 10.1257/aer.89.5.1216
Perotti, R. (2004). Public investment: another (different) look, IGIER, Working Paper No 277
Reynolds, L.G. (1985). Economic Growth in the Third World, 1850–1980, New Haven: Yale University Press
Reynolds, L.G. (1994). Government and economic growth’, in G.M. Meier (ed.), From Classical Economics to Development Economics, New York: St Martin’s Press
Rodrik, D. (2003). In Search of Prosperity: Analytic Narratives on Economic Growth, Princeton University Press, Princeton.
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), 71-102. doi. 10.1086/261725
Romer, P.M. (1993). Idea gaps and object gaps in economic development, Journal of Monetary Economics, 3283), 542-573. doi. 10.1016/0304-3932(93)90029-F
Rosenberg, N., & Birdzell, L.E. (1986). How the West Grew Rich, New York: Basic Books
Rostow, W.W. (1960). The Stages of Economic Growth, Cambridge: Cambridge University Press.
Sims, C.A. (1980). Comparisons of interwar and postwar business cycles: Monetarism reconsidered, American Economic Review, 70(2), 250-257.
Snowdon, B., & Vane, R.H. (2005). Macroeconomics: Its Origins, Development and Current State, Edward Elgar Publishing Ltd, United Kingdom
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.
Swan, T.W. (1956). Economic growth and capital accumulation, Economic Record, November
Temple, J. (1999). The new growth evidence, Journal of Economic Literature, 37(1), 112-156. Doi. 10.1257/jel.37.1.112
Trevithick, J.A. (1992). Involuntary Unemployment: Macroeconomics from a Keynesian Perspective, London: Harvester-Wheatsheaf.
UNCTAD (2009). Public Investment: Vital for Growth and Renewal, but Should it be a Countercyclical Weapon?, United Nations background report (UNCTAD), Geneva/New York.
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, August.
