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Neither crowding in nor out: Public direct investment mobilising private investment into renewable electricity projects

Author

Listed:
  • Matteo Deleidi

    (Department of Economics, University Roma Tre)

  • Mariana Mazzucato

    (UCL Institute of Innovation and Public Purpose)

  • Gregor Semieniuk

    (Department of Economics, SOAS University of London)

Abstract

Rapid structural change towards a low-carbon energy supply requires significant additional investments into innovative but high-risk low-carbon technologies. Mobilising greater private investments requires applying the right policy instruments, but while fiscal measures and regulation have been well researched, systematic quantitative evidence about the effect of public direct investment is lacking. Absent empirical evidence, contradictory theoretical arguments claim that such public (co-)investments either ‘crowd out’ or ‘crowd in’ private investors. In this paper we show that the macroeconomic concept of crowding out/in is inapplicable to sectoral studies such as of renewable electricity. Instead, both neoclassical microeconomics and evolutionary economics suggest public direct investment to have a positive effect due to either externalities or market creation effects. We also provide the first quantitative estimate of the effect of public direct investment on private investment into renewable electricity technologies for 17 countries in the period 2004-2014. Using feasible generalised least squares (FGLS) and static and dynamic generalised method of moments (GMM) estimators, we find that public investments not only have a positive but also consistently the largest effect on private investment flows relative to feed-in tariffs, taxes and renewable portfolio standards in general, and for wind and solar technologies separately. Implications for policy aimed at accelerating the low-carbon transition are discussed.

Suggested Citation

  • Matteo Deleidi & Mariana Mazzucato & Gregor Semieniuk, 2019. "Neither crowding in nor out: Public direct investment mobilising private investment into renewable electricity projects," Working Papers 226, Department of Economics, SOAS University of London, UK.
  • Handle: RePEc:soa:wpaper:226
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    Keywords

    public direct investment; crowding out; crowding in; renewable electricity technology; innovation financing; externality; entrepreneurial state; market creation; climate change mitigation policy;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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