Working Paper #2011-051
Optimal public investment, growth, and consumption: Evidence from African countries
How much does public capital matter for economic growth? How large
should it be? This paper attempts to answer these questions, taking the
case of SSA countries. It develops and estimates a model that posits a
nonlinear relationship between public investment and growth, to
determine the growth-maximizing public investment GDP share. It
empirically also accounts for the crowding-in and crowding-out effects
between public and private investment, with equations estimated
separately and simultaneously, using System GMM. The paper further runs
simulation and examines the public investment GDP share that maximizes
consumption. This is estimated to be between 8.4 percent and 11.0
percent. The results from estimating the growth model are in the middle
of this range, which is larger than the observed value of 7.2 percent at
the end of the sample period. These outcomes suggest that, on average,
there has been public under-investment in Africa, contrary to previous
findings.
- Keywords
-
- Public investment
- Economic Growth
- Nonlinearity
- JEL codes
-
- O4
- H4
Cite this as
APA 7th ed.Kwasi Fosu, A., Getachew, Y. Y., & Ziesemer, T. (2011). Optimal public investment, growth, and consumption: Evidence from African countries (UNU-MERIT Working Paper No. 2011-051). UNU-MERIT. https://unu-merit.nl/publications/working-papers/abstract/?id=4504