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Government Investment and Economic Growth in the Developing World

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  • Mohsin S. Khan

    (Research Department, International Monetary Fund, Washington, D. C.)

Abstract

There has been a sea change in the views of the economics profession as well as economic policy-makers over the past decade or so regarding the role of the government in the development process. Indeed, it is now becoming conventional wisdom that government can no longer be a dominant player in economic activities, but rather should restrict itself to providing an “enabling” environment within which the private sector can take the lead and flourish. More specifically, government intervention in the economy has to be designed carefully so as to support the private sector and not inhibit its development. The general acceptance of this paradigm is evident in the steadily declining importance of government activities in the economies of most of the developing world. But does this new paradigm mean that government investment has no role whatsoever in affecting growth in developing countries? Reality is that public investment still represents a large share of total investment in the majority of developing countries, and the question is what role it plays in relation to private investment in stimulating economic growth. The objective of this paper is to ascertain empirically for a large group of developing countries the relative importance of public and private investment in promoting and sustaining growth.

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Bibliographic Info

Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 35 (1996)
Issue (Month): 4 ()
Pages: 419-439

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Handle: RePEc:pid:journl:v:35:y:1996:i:4:p:419-439

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  1. Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
  2. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  3. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  4. Stanley Fischer, 1993. "The Role of Macroeconomic Factors in Growth," NBER Working Papers 4565, National Bureau of Economic Research, Inc.
  5. Gene M. Grossman & Elhanan Helpman, 1990. "Trade, Knowledge Spillovers, and Growth," NBER Working Papers 3485, National Bureau of Economic Research, Inc.
  6. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  7. Edwards, Sebastian, 1992. "Trade orientation, distortions and growth in developing countries," Journal of Development Economics, Elsevier, vol. 39(1), pages 31-57, July.
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Cited by:
  1. Ndikumana, Leonce, 2000. "Financial Determinants of Domestic Investment in Sub-Saharan Africa: Evidence from Panel Data," World Development, Elsevier, vol. 28(2), pages 381-400, February.
  2. Ali Alichi & Rabah Arezki, 2012. "An alternative explanation for the resource curse: the income effect channel," Applied Economics, Taylor & Francis Journals, vol. 44(22), pages 2881-2894, August.
  3. Leonce Ndikumana, 2008. "Can macroeconomic policy stimulate private investment in South Africa? New insights from aggregate and manufacturing sector-level evidence," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(7), pages 869-887.
  4. Ejaz Ghani & Musleh-Ud Din, 2006. "The Impact of Public Investment on Economic Growth in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(1), pages 87-98.
  5. A Badawi, 2003. "Private Capital Formation and Public Investment in Sudan: Testing the Substitutability and Complementarity Hypotheses in a Growth Framework," The School of Economics Discussion Paper Series 0316, Economics, The University of Manchester.

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