Despite t h e growing support f o r market-oriented strategies, and for a greater role of private investment, empirical growth models for developing countries typically make no distinction between the private and p u b l i c components a f investment. This paper sheds some l i g h t on this important issue by formulating a simple growth model t h a t separates the effects of public sector and private sector investment. This model is estimated for a cross-section sample of 24 developing countrtes, and the results suppart the notion t h a t p r i v a t e investment has a larger direct effect on growth than does public investment. *We a r e grateful to Joshua Greene, Deena Khatkhate, Peter Montiel, and Delano Villanueva for helpful comments, and to Ravina Malkani f o r excellent assistance.-ii -
Contents
This paper examines the relative contribution of public and private investment to per capita GDP growth in developing countries. It extends the basic neoclassical model of growth by separating investment into its public and private components, and estimates this model for a sample of 95 developing countries over the period 1970–90 using both cross‐sectional and panel data. Using data on relative supplies of public and private capital stock, rates of return to public and private investment are also computed. The results suggest that once other determinants of growth, such as human capital formation, population growth, and technical progress, are taken into account, public and private investment have different effects on growth, and that these effects are characterized by marked regional and inter‐temporal variations.
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