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Public Investment and Growth in the Eastern Caribbean

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  • Shaun K. Roache
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    Abstract

    This paper quantifies the effect of public investment on growth in the ECCU. The results, emerging from panel vector autoregressions, indicate that the return on public investment, as defined by Perreira (2000), is very likely negative. This means that the total change in real output induced by one EC dollar of public investment, due to its short-run impact on demand, or the longer-run impact on supply, is below one EC dollar. Public investment shocks also appear to appreciate the real exchange rate, suggesting that the short-run demand impact is larger than the long-run supply response.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/124.

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    Length: 20
    Date of creation: 01 May 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/124

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    Related research

    Keywords: Public investment; Economic growth; Economic models; rate of return; private investment; private capital; capital expenditure; investment growth; investment spending; cost of capital; fiscal discipline; investment projects; investment plans; capacity utilization; domestic investment;

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    References

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    1. Ruth A. Judson & Ann L. Owen, 1997. "Estimating dynamic panel data models: a practical guide for macroeconomists," Finance and Economics Discussion Series 1997-3, Board of Governors of the Federal Reserve System (U.S.).
    2. Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
    3. Rupa Duttagupta & Guillermo Tolosa, 2006. "Fiscal Discipline and Exchange Rate Regimes," IMF Working Papers 06/119, International Monetary Fund.
    4. Khan, Mohsin S & Kumar, Manmohan S, 1997. "Public and Private Investment and the Growth Process in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(1), pages 69-88, February.
    5. Alfredo M. Pereira & Maria de F�tima Pinho, 2006. "Public Investment, Economic Performance and Budgetary Consolidation: VAR Evidence for the 12 Euro Countries," Working Papers 40, Department of Economics, College of William and Mary.
    6. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    7. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
    8. Shaun K. Roache, 2006. "Domestic Investment and the Cost of Capital in the Caribbean," IMF Working Papers 06/152, International Monetary Fund.
    9. Alicia H. Munnell, 1992. "Policy Watch: Infrastructure Investment and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 189-198, Fall.
    10. Shaun K. Roache, 2006. "Domestic Investment and the Cost of Capital in the Caribbean," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(3).
    11. Alfredo M. Pereira, 2000. "Is All Public Capital Created Equal?," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 513-518, August.
    12. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
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    Cited by:
    1. Hunter K. Monroe, 2009. "Can the Eastern Caribbean Currency Union Afford to Grow Old?," IMF Working Papers 09/38, International Monetary Fund.

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