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The Crowding-in/ out Debate in Investments in India: Fresh Evidence from NARDL Application

Author

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  • Nusrat Akber
  • Megha Gupta
  • Kirtti Ranjan Paltasingh

Abstract

The purpose of the study is to re-examine the issue of the crowding-in/out effect of public investment on private investment by adopting an improved methodology of the ‘nonlinear autoregressive distributive lag’ (NARDL) model. Taking data from 1970 to 2016, the study finds that public investment crowds-in private investment both in the long-run as well as the short-run. However, the short-run elasticity is statistically more significant and larger in magnitude than the long-run elasticity. It has also been found that macroeconomic uncertainty significantly affects private investment both in the long-run and the short-run. Among other determinants of private investment, we observe foreign direct investment (FDI) inflow, credit flow to the private sector, household savings, real rate of interest and expected output affect private investment significantly. The policy implication of the study calls for the designing of public sector policies that enthuse more private investments. More credit flow to private sectors and FDI in different sectors of the economy should be prioritized. JEL Codes: E22, H54, C32

Suggested Citation

  • Nusrat Akber & Megha Gupta & Kirtti Ranjan Paltasingh, 2020. "The Crowding-in/ out Debate in Investments in India: Fresh Evidence from NARDL Application," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(2), pages 167-189, December.
    • Handle: RePEc:sae:smppub:v:9:y:2020:i:2:p:167-189
    DOI: 10.1177/2277978720942676
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    More about this item

    Keywords

    Crowding-in/out; public investment; private investment; NARDL model; India;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • 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

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