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Does public capital crowd out private capital? : evidence from India

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  • Serven,Luis

Abstract

A recent but rapidly growing empirical literature focuses on the relationship between public and private capital. But for the most part, it ignores the heterogeneity of public investment. In many countries, especially in the developing world, public investmentincludes not only basic infrastructure projects, but also commercial and industrial projects similar to those undertaken by the private sector. And those two types of public investment are likely to have quite different effects on the accumulation of private capital. Using data from India, the author examines this issue empirically by implementing a simple analytical model encompassing two types of public capital. The empirical results show that in the long run capital for public infrastructure projects crowds in private capital - other types of public capital have the opposite effect. But in the short run, both kinds of public investment may crowd out private investment.

Suggested Citation

  • Serven,Luis, 1996. "Does public capital crowd out private capital? : evidence from India," Policy Research Working Paper Series 1613, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1613
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    References listed on IDEAS

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    1. Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-1196, September.
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    Cited by:

    1. Pargal, Sheoli, 2003. "Regulation and private sector investment in infrastructure - evidence from Latin America," Policy Research Working Paper Series 3037, The World Bank.
    2. Marianna Belloc & Pietro Vertova, 2004. "How Does Public Investment Affect Economic Growth in HIPC? An Empirical Assessment," Department of Economics University of Siena 416, Department of Economics, University of Siena.
    3. Pritha Mitra, 2006. "Has Government Investment Crowded Out Private Investment in India?," American Economic Review, American Economic Association, vol. 96(2), pages 337-341, May.
    4. Baffes, John & Elbadawi, Ibrahim A. & O'Connell, Stephen A., 1997. "Single-equation estimation of the equilibrium real exchange rate," Policy Research Working Paper Series 1800, The World Bank.

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