IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

On the Relationship between Public and Private Investment in the Euro Area

  • Dreger, Christian

    ()

    (DIW Berlin)

  • Reimers, Hans-Eggert

    ()

    (Wismar University of Technology, Business and Design)

This paper explores the long run relationship between public and private investment in the euro area in terms of capital stocks and gross investment flows. Panel techniques ac-counting for international spillovers are employed. While private and public capital stocks are cointegrated, the evidence is quite fragile for public and private investment flows. They enter a long run relationship only after fundamental drivers of private investment, such as demand and financing costs are included. According to the impulse response analysis, private investment reacts to shocks in public investment both in terms of stock and flow variables. In contrast, public investment is rather exogenous. Therefore, the lack of public investment might have restricted private investment and GDP growth in the euro area. The results have strong implications for the future direction of fiscal austerity programs to combat the euro area debt crisis.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ftp.iza.org/dp8002.pdf
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 8002.

as
in new window

Length: 20 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:iza:izadps:dp8002
Contact details of provider: Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Westerlund, Joakim, 2005. "Testing for Error Correction in Panel Data," Working Papers 2005:11, Lund University, Department of Economics.
  2. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
  3. António Afonso & Miguel St.Aubyn, 2008. "Macroeconomic Rates of Return of Public and Private Investment: Crowding-in and Crowding-out Effects," Working Papers Department of Economics 2008/06, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  4. Calderon, Cesar & Moral-Benito, Enrique & Serven, Luis, 2011. "Is infrastructure capital productive ? a dynamic heterogeneous approach," Policy Research Working Paper Series 5682, The World Bank.
  5. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  6. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  7. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
  8. Damiaan Persyn & Joakim Westerlund, 2008. "Error-correction–based cointegration tests for panel data," Stata Journal, StataCorp LP, vol. 8(2), pages 232-241, June.
  9. Valila, Timo & Mehrotra, Aaron, 2005. "Evolution And Determinants Of Public Investment In Europe," Economic and Financial Reports 2005/1, European Investment Bank, Economics Department.
  10. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
  11. Roberto Perotti, 2007. "In Search of the Transmission Mechanism of Fiscal Policy," NBER Working Papers 13143, National Bureau of Economic Research, Inc.
  12. Salotti, Simone & Marattin, Luigi, 2009. "On the usefulness of government spending in the EU area," MPRA Paper 19171, University Library of Munich, Germany.
  13. Isabel Argimon & Jose Gonzalez-Paramo & Jose Roldan, 1997. "Evidence of public spending crowding-out from a panel of OECD countries," Applied Economics, Taylor & Francis Journals, vol. 29(8), pages 1001-1010.
  14. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  15. Aschauer, David Alan, 1989. "Does public capital crowd out private capital?," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 171-188, September.
  16. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  17. 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.
  18. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp8002. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.