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On the Effects of Public Investment on Private Investment: What Crowds in What?

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  • Alfredo M. Pereira

    (The College of William and Mary)

Abstract

This article provides an empirical investigation of the effects of public investment on the evolution of private investment in the United States. It is based on the impulse response analysis associated with vector auto-regressive (VAR) estimates. The empirical results suggest that at the aggregate level, public investment crowds in private investment. Disaggregating private investment shows that the crowding-in effect of public investment is strong for equipment and only marginal for structures. This crowding-in effect on private equipment is particularly strong in the cases of industrial equipment and transportation equipment. In fact, public investment marginally crowds out private investment in information equipment. A final look at the effects of different types of public investment on the different types of private investment suggests that in about one third of the cases, public investment variables crowd out private sector variables. More important, the aggregate results often hide a wide diversity of effects.

Suggested Citation

  • Alfredo M. Pereira, 2001. "On the Effects of Public Investment on Private Investment: What Crowds in What?," Public Finance Review, , vol. 29(1), pages 3-25, January.
  • Handle: RePEc:sae:pubfin:v:29:y:2001:i:1:p:3-25
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Brown, Stephen P. A. & Hayes, Kathy J. & Taylor, Lori L., 2003. "State and Local Policy, Factor Markets, and Regional Growth," The Review of Regional Studies, Southern Regional Science Association, vol. 33(1), pages 40-60.
    2. Vitor Carvalho & Diogo Barbosa & Paulo Jorge Pereira, 2013. "The interaction between firms and Government in the context of investment decisions: a real options approach," EcoMod2013 5390, EcoMod.
    3. Yang Zou, 2006. "Empirical studies on the relationship between public and private investment and GDP growth," Applied Economics, Taylor & Francis Journals, vol. 38(11), pages 1259-1270.
    4. Ahmed Badawi, 2003. "Private capital formation and public investment in Sudan: testing the substitutability and complementarity hypotheses in a growth framework," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 783-799.
    5. Barbosa, Diogo & Carvalho, Vitor M. & Pereira, Paulo J., 2016. "Public stimulus for private investment: An extended real options model," Economic Modelling, Elsevier, vol. 52(PB), pages 742-748.
    6. Ward Romp & Jakob de Haan, 2007. "Public Capital and Economic Growth: A Critical Survey," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 8(s1), pages 6-52, April.
    7. Christophe Kamps, 2005. "The Dynamic Effects of Public Capital: VAR Evidence for 22 OECD Countries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 12(4), pages 533-558, August.
    8. Brinca, Pedro, 2006. "The impact of public investment in Sweden: A VAR approach," MPRA Paper 62132, University Library of Munich, Germany.
    9. Toshiya Hatano, 2010. "Crowding - in Effect of Public Investment on Private Investment," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 6(1), pages 105-120, February.
    10. repec:eee:touman:v:50:y:2015:i:c:p:257-267 is not listed on IDEAS
    11. Muyambiri, Brian & Chiwira, Oscar & Enowbi Batuo, Michael & Chiranga, Ngonidzashe, 2010. "The Causal Relationship between Private and Public Investment in Zimbabwe," MPRA Paper 26671, University Library of Munich, Germany.
    12. International Monetary Fund, 2007. "Vietnam; Selected Issues," IMF Staff Country Reports 07/385, International Monetary Fund.
    13. 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.
    14. Valter Di Giacinto & Giacinto Micucci & Pasqualino Montanaro, 2012. "The Macroeconomic Impact of Infrastructures: A Literature Review and Empirical Analysis on the Case of Italy," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 1, March.
    15. 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.
    16. Torrisi, Gianpiero, 2009. "Infrastructures and economic performance: a critical comparison across four approaches," MPRA Paper 18688, University Library of Munich, Germany.
    17. Marius-Corneliu MARINAS, 2011. "Inefficiency Of Public Investment In Romania," Proceedings of Administration and Public Management International Conference, Research Centre in Public Administration and Public Services, Bucharest, Romania, vol. 7(1), pages 356-364, June.
    18. Marius Samizafy, 2009. "Assessing the Leverage Effect of Public Debt in Albania and Serbia," Book Chapters, Institute of Economic Sciences.
    19. Torrisi, Gianpiero, 2009. "Public infrastructure: definition, classification and measurement issues," MPRA Paper 12990, University Library of Munich, Germany.
    20. repec:rom:campco:v:7:y:2011:i:1:p:356-364 is not listed on IDEAS

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