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The Positive Effect of Public Investment on Potential Growth

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  • Jean-Marc Fournier

Abstract

An estimated baseline convergence model capturing the long-term effect of human capital and physical investment on potential output for a panel of OECD countries is augmented with public investment and its components. The estimations suggest that public investment has a positive effect on long-term growth and on labour productivity. Public investment can also increase the speed of convergence of catching-up countries. Public investment is more beneficial in some areas than others. This is particularly the case of public investment in health and in research and development. There is also evidence that growth gains from increasing public investment may decline at a high level of the public capital stock due to decreasing returns L’effet positif de l’investissement public sur la croissance potentielle Un modèle de convergence de base mesure l’effet à long terme du capital humain et de l’investissement physique sur la production potentielle pour un panel de pays de l’OCDE. L’investissement public et ses composantes y sont ajoutés. Les estimations suggèrent que l’investissement public a un effet positif sur la croissance et sur la productivité du travail à long terme. L’investissement public peut également accroître la vitesse de convergence des pays en voie de rattrapage. L’investissement public est plus bénéfique dans certains domaines que d’autres. C’est particulièrement le cas de l’investissement public dans la santé et dans la recherche et le développement. Il est également prouvé que les gains de croissance découlant de l’accroissement des investissements publics pourraient baisser à un niveau élevé de stock de capital public en raison de rendements décroissants.

Suggested Citation

  • Jean-Marc Fournier, 2016. "The Positive Effect of Public Investment on Potential Growth," OECD Economics Department Working Papers 1347, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1347-en
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    File URL: http://dx.doi.org/10.1787/15e400d4-en
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    Cited by:

    1. repec:vrn:journl:y:2017:i:3:p:281-290 is not listed on IDEAS
    2. Jean-Marc Fournier & Åsa Johansson, 2016. "The Effect of the Size and the Mix of Public Spending on Growth and Inequality," OECD Economics Department Working Papers 1344, OECD Publishing.
    3. Geraldine Ang & Dirk Röttgers & Pralhad Burli, 2017. "The empirics of enabling investment and innovation in renewable energy," OECD Environment Working Papers 123, OECD Publishing.
    4. Oguzhan Akgun & David Bartolini & Boris Cournède, 2017. "The capacity of governments to raise taxes," OECD Economics Department Working Papers 1407, OECD Publishing.
    5. Annabelle Mourougane & Jarmila Botev & Jean-Marc Fournier & Nigel Pain & Elena Rusticelli, 2016. "Can an Increase in Public Investment Sustainably Lift Economic Growth?," OECD Economics Department Working Papers 1351, OECD Publishing.
    6. repec:ipf:psejou:v:42:y:2018:i:2:p:171-186 is not listed on IDEAS
    7. Isabelle Joumard & Peter Hoeller & Jean-Marc Fournier & Hermes Morgavi, 2017. "Public debt in India: Moving towards a prudent level?," OECD Economics Department Working Papers 1400, OECD Publishing.
    8. Debra Bloch & Jean-Marc Fournier & Duarte Gonçalves & Álvaro Pina, 2016. "Trends in Public Finance: Insights from a New Detailed Dataset," OECD Economics Department Working Papers 1345, OECD Publishing.
    9. Åsa Johansson, 2016. "Public Finance, Economic Growth and Inequality: A Survey of the Evidence," OECD Economics Department Working Papers 1346, OECD Publishing.
    10. Randall S. Jones & Kohei Fukawa, 2017. "Ensuring Fiscal Sustainability in Japan in the Context of a Shrinking and Ageing Population," OECD Economics Department Working Papers 1413, OECD Publishing.
    11. Ludovit Odor, 2016. "What should we include in the Fiscal Space Review?," Discussion Papers Discussion Paper No. 5/20, Council for Budget Responsibility.
    12. Debra Bloch & Jean-Marc Fournier, 2018. "The deterioration of the public spending mix during the global financial crisis: Insights from new indicators," OECD Economics Department Working Papers 1465, OECD Publishing.

    More about this item

    Keywords

    decreasing marginal returns; growth; health investment; public investment; research and development;

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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