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The dynamic effects of public investments on private capital formation: Modelling a heterogeneous asymmetric cointegration with unobserved global factors

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  • Carvelli, Gianni

Abstract

Using quarterly data on a panel of 14 OECD economies over 1960–2023, we model heterogeneously the nexus between public investments and private capital formation, allowing for asymmetric cointegration, fiscal feedback and addressing cross-sectional dependence. We find that: i) public investments crowd-in private investments in the short- and the long-run; ii) the private sector responds asymmetrically to expansions and reliefs in the flow of public capital; iii) the adjustments to the country-specific equilibrium paths depend on the way global shocks and local spillovers are modelled; iv) the effects of public investments could be partially offset if fiscal policy is used aggressively.

Suggested Citation

  • Carvelli, Gianni, 2024. "The dynamic effects of public investments on private capital formation: Modelling a heterogeneous asymmetric cointegration with unobserved global factors," International Economics, Elsevier, vol. 177(C).
    • Handle: RePEc:eee:inteco:v:177:y:2024:i:c:s2110701723000859
    DOI: 10.1016/j.inteco.2023.100473
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    Keywords

    Asymmetric cointegration; Cross-sectional dependence; Panel analysis; Private investments; Public investments;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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