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How Fiscal Policy Matters: An Empirical Analysis of the "Crowding-In" Effects of Public Infrastructure Investment in India

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Listed:
  • Venkat Hariharan Asha
  • Ajay Ojha
  • Sutharson T
  • Lekha S. Chakraborty

Abstract

Using high-frequency data, the paper analyzes the link between public infrastructure investment and private corporate investment in India for the decade ending 2023-24. We adopt the ARDL model to investigate the existence of cointegration and find strong evidence of the crowding-in of private corporate investment both in the long- and short-run analyses. Moreover, long-term real interest rates and foreign direct investment provide higher estimates of crowding-in vis-a-vis short-term real interest rates and foreign portfolio investment, which underscore greater emphasis on systemic and fundamental factors (as compared to transitory factors) and the effectiveness of monetary policy. The recent thrust on deregulation and sustained enhancement in capital expenditure augur well in providing the necessary ambience to boost private investment and economic growth in the medium term.

Suggested Citation

  • Venkat Hariharan Asha & Ajay Ojha & Sutharson T & Lekha S. Chakraborty, 2025. "How Fiscal Policy Matters: An Empirical Analysis of the "Crowding-In" Effects of Public Infrastructure Investment in India," Economics Working Paper Archive wp_1097, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_1097
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    References listed on IDEAS

    as
    1. Blinder, Alan S. & Solow, Robert M., 1976. "Does fiscal policy matter? : A correction," Journal of Public Economics, Elsevier, vol. 5(1-2), pages 183-184.
    2. Willem H. Buiter, 1990. "Principles of Budgetary and Financial Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262524139, December.
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    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • 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
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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