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Does public capital crowd out private capital? : evidence from India

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Author Info

  • Serven, Luis

Abstract

A recent but rapidly growing empirical literature focuses on the relationship between public and private capital. But for the most part, it ignores the heterogeneity of public investment. In many countries, especially in the developing world, public investment includes not only basic infrastructure projects, but also commercial and industrial projects similar to those undertaken by the private sector. And those two types of public investment are likely to have quite different effects on the accumulation of private capital. Using data from India, the author examines this issue empirically by implementing a simple analytical model encompassing two types of public capital. The empirical results show that in the long run capital for public infrastructure projects crowds in private capital - other types of public capital have the opposite effect. But in the short run, both kinds of public investment may crowd out private investment.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1613.

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Date of creation: 31 May 1996
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Handle: RePEc:wbk:wbrwps:1613

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Keywords: Decentralization; Economic Theory&Research; International Terrorism&Counterterrorism; Banks&Banking Reform; Capital Markets and Capital Flows; Inequality; Economic Stabilization; Economic Theory&Research; Environmental Economics&Policies; Banks&Banking Reform;

References

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  1. Berndt, Ernst R & Hansson, Bengt, 1992. " Measuring the Contribution of Public Infrastructure Capital in Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages S151-68, Supplemen.
  2. Berndt, Ernst & Hansson, Bengt, 1992. "Measuring the Contribution of Capital in Sweden," Working Paper Series 365, Research Institute of Industrial Economics.
  3. Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers 885, C.E.P.R. Discussion Papers.
  4. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
  5. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
  6. Peter Boswijk, H., 1994. "Testing for an unstable root in conditional and structural error correction models," Journal of Econometrics, Elsevier, vol. 63(1), pages 37-60, July.
  7. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  8. Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-28, August.
  9. Bardsen, Gunnar, 1989. "Estimation of Long Run Coefficients in Error Correction Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(3), pages 345-50, August.
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Citations

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Cited by:
  1. Pargal, Sheoli, 2003. "Regulation and private sector investment in infrastructure - evidence from Latin America," Policy Research Working Paper Series 3037, The World Bank.
  2. Baffes, John & Elbadawi, Ibrahim A. & O'Connell, Stephen A., 1997. "Single-equation estimation of the equilibrium real exchange rate," Policy Research Working Paper Series 1800, The World Bank.
  3. Marianna Belloc & Pietro Vertova, 2004. "How Does Public Investment Affect Economic Growth in HIPC? An Empirical Assessment," Department of Economics University of Siena 416, Department of Economics, University of Siena.
  4. Pritha Mitra, 2006. "Has Government Investment Crowded Out Private Investment in India?," American Economic Review, American Economic Association, vol. 96(2), pages 337-341, May.

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