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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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    Cited by:

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    3. Tomomi Miyazaki, 2018. "Interactions between regional public and private investment: evidence from Japanese prefectures," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 60(1), pages 195-211, January.
    4. Kato, Ryuta Ray & Miyamoto, Hiroaki, 2013. "Fiscal stimulus and labor market dynamics in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 30(C), pages 33-58.
    5. Tomomi Miyazaki, 2016. "Fiscal stimulus effectiveness in Japan: evidence from recent policies," Applied Economics, Taylor & Francis Journals, vol. 48(27), pages 2506-2515, June.
    6. Hiraga, Kazuki & Kozuka, Masafumi & Miyazaki, Tomomi, 2018. "Public capital and asset prices: Time-series evidence from Japan," Finance Research Letters, Elsevier, vol. 25(C), pages 172-176.
    7. Funashima, Yoshito & Ohtsuka, Yoshihiro, 2019. "Spatial crowding-out and crowding-in effects of government spending on the private sector in Japan," Regional Science and Urban Economics, Elsevier, vol. 75(C), pages 35-48.
    8. Kanazawa, Nobuyuki, 2021. "Public investment multipliers: Evidence from stock returns of the road pavement industry in Japan," Journal of Economic Dynamics and Control, Elsevier, vol. 133(C).
    9. repec:hal:spmain:info:hdl:2441/2a4lft86ed8kqpphgfkgrdfrk1 is not listed on IDEAS
    10. Tomomi Miyazaki, 2014. "Fiscal Policy Effectiveness in Japan: Experiences from Recent Policies," Discussion Papers 1416, Graduate School of Economics, Kobe University.
    11. Katarzyna Kopczewska, 2017. "Kumulatywny vs. panelowy model przestrzenny w modelowaniu inwestycji lokalnych polskich gmin w latach 1995–2015," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 47, pages 113-128.

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    More about this item

    Keywords

    Fiscal policy; Investment; Crowding-out; Crowding-in; FAVAR;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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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