The effects of public investment on private investment in developing economies

  • Erden L
  • Holcombe R
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The literature on the impact of public investment in developing economies gives inconsistent results on whether it complements or crowds out private investment. Applying several pooled specifications ofa standard investment model to a panel of developing economies for 1980 to 1997, this study finds that public investment complements private investment, and that, on average, a 10 percent increase in public investment is associated with a 2 percent increase in private investment The results also indicate that private investment is constrained by the availability of bank credit in developing economies. The same empirical models are run on a panel of developed economies. in contrast to developing economies, public investment crowds out private investment in developed economies. The results show that in a number of important ways, private investment in developed economies is influenced by different factors than private investment in developing economies. ABSTRACT FROM AUTHOR]; Copyright of Public Finance Review is the property of Sage Publications Inc. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Author-supplied keywords

  • Capital markets
  • Credit
  • Developing economies
  • Investment
  • Public expenditure

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  • Lutfi Erden

  • Randall G. Holcombe

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