Government Expenditures, Financing, and Economic Growth in Cape Verde

Abstract

In the last 15 years, the economy of Cape Verde has grown steadily and doubled its GDP. Part of this success could be attributed to having one of the world’s highest public investment shares of GDP. However, Cape Verde faces potential challenges due to allocating too much public investment to infrastructure versus human capital formation (health and education) and due to an increase in public debt. Using a two-sector endogenous growth model, we find that reallocating public spending from infrastructure to human capital can have large positive effects on long run growth rates.