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Too much and too fast? Public investment scaling-up and abssoptive capacity

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  • Andrea Filippo Presbitero

    () (International Monetary Fund, Universit… Politecnica delle Marche - MoFiR)

Abstract

A recent trend in several low-income developing countries has been a rapid scaling-up of public investment. It is argued that in the presence of limited absorptive capacity countries are not able - in terms of skills, institutions, management - to translate additional public investment into sustained output growth. We test for the presence of absorptive capacity constraints using a large dataset of World Bank investment projects, approved between 1970 and 2007 in 80 countries. Our results indicate that projects undertaken in periods of public investment scaling-up are less likely to be successful, although this effect is relatively small, especially in poor and capital scarce countries. We also verify that this effect is unrelated to large aid flows and donor fragmentation.

Suggested Citation

  • Andrea Filippo Presbitero, 2015. "Too much and too fast? Public investment scaling-up and abssoptive capacity," Mo.Fi.R. Working Papers 115, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  • Handle: RePEc:anc:wmofir:115
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    2. Nazim Belhocine & La-Bhus Fah Jirasavetakul, 2020. "Lessons from Two Public Sector Reforms in Italy," IMF Working Papers 2020/040, International Monetary Fund.
    3. Daniel Gurara & Kangni R Kpodar & Andrea F Presbitero & Dawit Tessema, 2020. "On the Capacity to Absorb Public Investment: How Much is Too Much?," IMF Working Papers 2020/048, International Monetary Fund.
    4. Axel Dreher & Valentin F. Lang & Sebastian Ziaja, 2017. "Foreign Aid in Areas of Limited Statehood," CESifo Working Paper Series 6340, CESifo.
    5. Sinem Kilic Celik & M. Ayhan Kose & Franziska Ohnsorge, 2020. "Subdued Potential Growth: Sources and Remedies," Koç University-TUSIAD Economic Research Forum Working Papers 2009, Koc University-TUSIAD Economic Research Forum.
    6. Rafael Aguirre Unceta, 2018. "Niger : la Quête du Développement dans un Contexte Adverse," Working Papers hal-02046108, HAL.
    7. Abdul Abiad & Margarita Debuque-Gonzales & Andrea Loren Sy, 2018. "The Evolution and Impact of Infrastructure in Middle-Income Countries: Anything Special?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(6), pages 1239-1263, May.
    8. Rafael AGUIRRE UNCETA, 2018. "Niger : la Quête du Développement dans un Contexte Adverse," Working Papers P247, FERDI.
    9. Renato Santiago & Matheus Koengkan & José Alberto Fuinhas & António Cardoso Marques, 2020. "The relationship between public capital stock, private capital stock and economic growth in the Latin American and Caribbean countries," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(3), pages 293-317, September.
    10. World Bank Group, 2017. "Global Economic Prospects, January 2017," World Bank Publications, The World Bank, number 25823, November.
    11. Martina Kirchberger, 2018. "The role of the construction sector," WIDER Working Paper Series wp-2018-146, World Institute for Development Economic Research (UNU-WIDER).
    12. Martina Viarengo & Martina Kirchberger, 2018. "The role of the construction sector," WIDER Working Paper Series 146, World Institute for Development Economic Research (UNU-WIDER).
    13. Sayadi, Mohammad & Khoshkalam Khosroshahi, Musa, 2020. "Assessing Alternative Investment Policies in a Resource-Rich Capital-Scarce Country: Results from a DSGE analysis for Iran," Energy Policy, Elsevier, vol. 146(C).
    14. Abiad, Abdul & Debuque-Gonzales, Margarita & Sy, Andrea Loren, 2017. "The Role and Impact of Infrastructure in Middle-Income Countries: Anything Special?," ADB Economics Working Paper Series 518, Asian Development Bank.
    15. Vorisek,Dana Lauren & Yu,Shu, 2020. "Understanding the Cost of Achieving the Sustainable Development Goals," Policy Research Working Paper Series 9164, The World Bank.

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    More about this item

    Keywords

    Absorptive capacity; Donor fragmentation; Infrastructure; Investment projects; Public investment;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis

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