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Economic Growth and Public and Private Investment Returns

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  • António Afonso
  • Miguel St. Aubyn

Abstract

We study the macroeconomic effects of public and private investment in 17 OECD economies through a VAR analysis with annual data from 1960 to 2014. From impulse response functions we find that public investment had a positive growth effect in most countries, and a contractionary effect in Finland, UK, Sweden, Japan, and Canada. Public investment led to private investment crowding out in Belgium, Ireland, Finland, Canada, Sweden, the UK and crowding-in effects in the rest of the countries. Private investment has a positive growth effect in all countries; crowds-out (crowds-in) public investment in Belgium and Sweden (in the rest of the countries). The partial rates of return of public and private investment are mostly positive. Key Words : fiscal policy, public investment, private investment, impulse response functions, VAR

Suggested Citation

  • António Afonso & Miguel St. Aubyn, 2016. "Economic Growth and Public and Private Investment Returns," Working Papers Department of Economics 2016/14, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp142016
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    References listed on IDEAS

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    1. repec:ebl:ecbull:v:8:y:2006:i:5:p:1-4 is not listed on IDEAS
    2. Miguel St. Aubyn & Álvaro Manuel Pina, 2006. "How should we measure the return on public investment in a VAR?," Economics Bulletin, AccessEcon, vol. 8(5), pages 1-4.
    3. Dreger, Christian & Reimers, Hans-Eggert, 2014. "On the Relationship between Public and Private Investment in the Euro Area," IZA Discussion Papers 8002, Institute of Labor Economics (IZA).
    4. António Afonso & Miguel St. Aubyn, 2009. "Macroeconomic Rates Of Return Of Public And Private Investment: Crowding‐In And Crowding‐Out Effects," Manchester School, University of Manchester, vol. 77(s1), pages 21-39, September.
    5. Pina, Alvaro Manuel & St. Aubyn, Miguel, 2005. "Comparing macroeconomic returns on human and public capital: An empirical analysis of the Portuguese case (1960-2001)," Journal of Policy Modeling, Elsevier, vol. 27(5), pages 585-598, July.
    6. Xiaoming Xu & Yanyang Yan, 2014. "Does government investment crowd out private investment in China?," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 17(1), pages 1-12, January.
    7. António Afonso & João Tovar Jalles, 2015. "How Does Fiscal Policy Affect Investment? Evidence from a Large Panel," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 20(4), pages 310-327, October.
    8. Abiad (ADB), Abdul & Furceri (IMF and University of Palermo), Davide & Topalova (IMF), Petia, 2016. "The macroeconomic effects of public investment: Evidence from advanced economies," Journal of Macroeconomics, Elsevier, vol. 50(C), pages 224-240.
    9. Antonio Afonso & Miguel St. Aubyn, 2010. "Public and private investment rates of return: evidence for industrialized countries," Applied Economics Letters, Taylor & Francis Journals, vol. 17(9), pages 839-843.
    10. Xiaoming Xu & Yanyang Yan, 2014. "Does government investment crowd out private investment in China?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 17(1), pages 1-12, March.
    11. 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. Francesca Castellani & Marcelo Olarreaga & Ugo Panizza & Yue Zhou, 2018. "Investment Gaps in IDB Borrowing Countries," IHEID Working Papers 03-2018, Economics Section, The Graduate Institute of International Studies.
    2. Makuyana Garikai & Odhiambo Nicholas M., 2018. "Public and Private Investment and Economic Growth: An Empirical Investigation," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 63(2), pages 87-106, August.

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    More about this item

    JEL classification:

    • 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
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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