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Optimal Public Investment, Growth, and Consumption: Fresh Evidence from African Countries

Author

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  • Augustin Kwasi Fosu

    (Institute of Statistical, Social and Economic Research (ISSER), University of Ghana, Legon, Ghana; Faculty of Economic and Management Sciences, University of Pretoria, Pretoria 0002, South Africa)

  • Yoseph Getachew

    (Department of Economics, Faculty of Economic and Management Sciences, University of Pre- toria, Pretoria 0002, South Africa)

  • Thomas H.W. Ziesemer

    (Department of Economics and UNU-MERIT, Maastricht University, Maastricht, Netherlands.)

Abstract

This paper develops a model positing a nonlinear relationship between pub- lic investment and growth. The model is then applied to a panel of African countries using nonlinear estimating procedures. The growth-maximizing level of public investment is estimated at about 10 percent of GDP based on System GMM estimation. The paper further runs simulations, obtaining the constant optimal public investment share that maximizes the sum of discounted con- sumption as between 8.1 percent and 9.6 percent of GDP. Compared with the observed end-of-panel mean value of no more than 7.26 percent, these estimates suggest that there has been signi?cant public under-investment in Africa.

Suggested Citation

  • Augustin Kwasi Fosu & Yoseph Getachew & Thomas H.W. Ziesemer, 2014. "Optimal Public Investment, Growth, and Consumption: Fresh Evidence from African Countries," Working Papers 201464, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201464
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