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Effects of public investment on sectoral private investment: A factor augmented VAR approach

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  • Fujii, Takao
  • Hiraga, Kazuki
  • Kozuka, Masafumi

Abstract

Public investment decreases aggregate private investment in both neoclassical and Keynesian models. There are no findings, however, on how public investment affects private investment on a disaggregated basis, such as sectoral private investment. More specifically, previous research has neglected the distinctions of sectoral investment behavior in response to public investment and the possibility of crowd-in effects in some industries, such as industries blessed with public demand. Meanwhile, public investment decreases sectoral private investment not only by keeping rental cost high, but also by differences in the resource misallocation effect of public investment itself; one sector receives a positive wealth effect while another suffers the opposite. In this paper we use a factor-augmented VAR (FAVAR), a model capable of analyzing large-scale VAR models, to investigate the extent to which public investment is crowded out or crowded in in different categories of industrial investment. Our results demonstrate that public investment confers different effects, both quantitative and qualitative, in individual sectors. This implies that public investment reaps different benefits in different sectors and that it can bring the worse effect of resource misallocation on some sectors.

Suggested Citation

  • Fujii, Takao & Hiraga, Kazuki & Kozuka, Masafumi, 2013. "Effects of public investment on sectoral private investment: A factor augmented VAR approach," Journal of the Japanese and International Economies, Elsevier, vol. 27(C), pages 35-47.
  • Handle: RePEc:eee:jjieco:v:27:y:2013:i:c:p:35-47 DOI: 10.1016/j.jjie.2012.11.003
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    References listed on IDEAS

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    Cited by:

    1. Mathilde Le Moigne & Francesco Saraceno & Sébastien Villemot, 2016. "Probably Too Little, Certainly Too Late. An Assessment of the Juncker Investment Plan," Sciences Po publications 2016-10, Sciences Po.
    2. Tomomi Miyazaki, 2016. "Interactions between Regional Public and Private Investment: Evidence from Japanese Prefectures," Discussion Papers 1608, Graduate School of Economics, Kobe University.
    3. Kato, Ryuta Ray & Miyamoto, Hiroaki, 2013. "Fiscal stimulus and labor market dynamics in Japan," Journal of the Japanese and International Economies, Elsevier, pages 33-58.
    4. Kato, Ryuta Ray & Miyamoto, Hiroaki, 2013. "Fiscal stimulus and labor market dynamics in Japan," Journal of the Japanese and International Economies, Elsevier, pages 33-58.
    5. Tomomi Miyazaki, 2015. "Fiscal Stimulus Effectiveness in Japan: Evidence from Recent Policies," Discussion Papers 1508, Graduate School of Economics, Kobe University.
    6. repec:spr:anresc:v:60:y:2018:i:1:d:10.1007_s00168-017-0852-3 is not listed on IDEAS
    7. Tomomi Miyazaki, 2014. "Fiscal Policy Effectiveness in Japan: Experiences from Recent Policies," Discussion Papers 1416, Graduate School of Economics, Kobe University.

    More about this item

    Keywords

    Fiscal policy; Investment; Crowding-out; Crowding-in; FAVAR;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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