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Twin balances, public governance and private investment: Quantile estimation for OECD countries

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  • Thanh Dinh Su
  • Canh Phuc Nguyen

Abstract

This paper examines the twin influences of fiscal balance and trade balance on the dynamics of private investment at times of institutional change. Applying quantile regression for panel data of 31 OECD countries in the period 2002–2017, the study contributes in three ways: 1) degradations of fiscal balances and trade balances have clear negative impacts on private investment; 2) improvements in public governance appear as a strong incentive for private investment; notably, better public governance constrains the negative impacts of the twin balances on private investment; 3) countries with higher institutional quality enjoy a positive net effect of the fiscal balance, while the negative net effect of the trade balance is reduced. This study has significant implications, advocating institutional improvement to stabilize private investment in OECD countries.

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  • Thanh Dinh Su & Canh Phuc Nguyen, 2021. "Twin balances, public governance and private investment: Quantile estimation for OECD countries," International Economics, CEPII research center, issue 165, pages 85-93.
    • Handle: RePEc:cii:cepiie:2021-q1-165-7
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    More about this item

    Keywords

    Fiscal balance; Trade balance; Public governance; Private investment; Quantile regression;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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