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Optimal Public Investment, Growth, And Consumption: Evidence From African Countries

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  • Fosu, Augustin Kwasi
  • Getachew, Yoseph Yilma
  • Ziesemer, Thomas H.W.

Abstract

This paper develops a model positing a nonlinear relationship between public 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% 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 consumption as between 8.1% and 9.6% of GDP. Compared with the observed end-of-panel mean value of no more than 7.26%, these estimates suggest that there has been significant public underinvestment in Africa.

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  • Fosu, Augustin Kwasi & Getachew, Yoseph Yilma & Ziesemer, Thomas H.W., 2016. "Optimal Public Investment, Growth, And Consumption: Evidence From African Countries," Macroeconomic Dynamics, Cambridge University Press, vol. 20(8), pages 1957-1986, December.
    • Handle: RePEc:cup:macdyn:v:20:y:2016:i:08:p:1957-1986_00
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