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Public Investment and Growth in the Eastern Caribbean


  • Shaun K. Roache


This paper quantifies the effect of public investment on growth in the ECCU. The results, emerging from panel vector autoregressions, indicate that the return on public investment, as defined by Perreira (2000), is very likely negative. This means that the total change in real output induced by one EC dollar of public investment, due to its short-run impact on demand, or the longer-run impact on supply, is below one EC dollar. Public investment shocks also appear to appreciate the real exchange rate, suggesting that the short-run demand impact is larger than the long-run supply response.

Suggested Citation

  • Shaun K. Roache, 2007. "Public Investment and Growth in the Eastern Caribbean," IMF Working Papers 07/124, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:07/124

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    References listed on IDEAS

    1. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1989. "The Revenues-Expenditures Nexus: Evidence from Local Government Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 415-429, May.
    2. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    3. Ruth Judson & Ann L. Owen, "undated". "Estimating Dynamic Panel Data Models: A Practical Guide for Macroeconomists," Finance and Economics Discussion Series 1997-03, Board of Governors of the Federal Reserve System (U.S.).
    4. Shaun K. Roache, 2006. "Domestic Investment and the Cost of Capital in the Caribbean," IMF Working Papers 06/152, International Monetary Fund.
    5. Rupa Duttagupta & Guillermo Tolosa, 2006. "Fiscal Discipline and Exchange Rate Regimes; Evidence From the Caribbean," IMF Working Papers 06/119, International Monetary Fund.
    6. Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
    7. Alicia H. Munnell, 1992. "Policy Watch: Infrastructure Investment and Economic Growth," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 189-198, Fall.
    8. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    9. Shaun K. Roache, 2006. "Domestic Investment and the Cost of Capital in the Caribbean," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(3).
    10. Alfredo M. Pereira & Maria de Fátima Pinho, 2006. "Public Investment, Economic Performance and Budgetary Consolidation: VAR Evidence for the 12 Euro Countries," Working Papers 40, Department of Economics, College of William and Mary.
    11. Khan, Mohsin S & Kumar, Manmohan S, 1997. "Public and Private Investment and the Growth Process in Developing Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(1), pages 69-88, February.
    12. Alfredo M. Pereira, 2000. "Is All Public Capital Created Equal?," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 513-518, August.
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    Cited by:

    1. Makuyana, Garikai & Odhiambo, Nicholas Mbaya, 2017. "Public and private investment and economic growth in Malawi:An ARDL-bounds testing approach," Working Papers 22003, University of South Africa, Department of Economics.
    2. Hunter K. Monroe, 2009. "Can the Eastern Caribbean Currency Union Afford to Grow Old?," IMF Working Papers 09/38, International Monetary Fund.

    More about this item


    Economic models; Economic growth; Caribbean; Public investment; growth; rate of return; private investment; private capital; capital expenditure;

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