Efficiency-Adjusted Public Capital and Growth

Gupta, Sanjeev; Kangur, Alvar; Wane, Abdoul Aziz; Papageorgiou, Chris

doi:10.5089/9781463903503.001

Cited by 33 publications

(20 citation statements)

References 30 publications

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“…This estimator has been used in this context by Calderón, Moral-Benito and Servén (2015). GDP data are from the Penn World Tables (7.1), capital stock data are measured capital stocks (calculated as the discounted sum of investment spending), from Gupta et al (2014). The chart report the betas and the corresponding values of the PIMI for 54 countries for which data on the PIMI are available (Dabla-Norris et al, 2012).…”

Section: Pimi Scorementioning

confidence: 99%

“…We focus on exogenous growth models because (i) they are the workhorse of growth theory and empirics that explains important features of post-war growth, such as conditional convergence in levels of income across countries, and (ii) Pritchett explicitly states that his assessment of the effects of public efficiency is based on exogenous growth models (see his footnote 15). 2 As should be clear by now, in this paper we subscribe to the concept of efficiency discussed in Pritchett (2000), Caselli (2005), and Gupta et al (2014)the ratio between the actual increment of public capital and the amount spent. This particular concept has been incorporated in macroeconomic models for developing economies such as those developed in Agénor (2014), Araujo et al (2015), Berg et al (2010Berg et al ( , 2013; Berg, Yang and Zanna (2015), Buffie et al (2012) and Melina, Yang and Zanna (2015), among others.…”

Section: Introductionmentioning

confidence: 99%

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Some Misconceptions about Public Investment Efficiency and Growth

et al. 2015

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We reconsider the macroeconomic implications of public investment efficiency, defined as the ratio between the actual increment to public capital and the amount spent. We show that, in a simple and standard model, increases in public investment spending in inefficient countries do not have a lower impact on growth than in efficient countries, a result confirmed in a simple crosscountry regression. This apparently counter-intuitive result, which contrasts with Pritchett (2000) and recent policy analyses, follows directly from the standard assumption that the marginal product of public capital declines with the capital/output ratio. The implication is that efficiency and scarcity of public capital are likely to be inversely related across countries. It follows that both efficiency and the rate of return need to be considered together in assessing the impact of increases in investment, and blanket recommendations against increased public investment spending in inefficient countries need to be reconsidered. Changes in efficiency, in contrast, have direct and potentially powerful impacts on growth: "investing in investing" through structural reforms that increase efficiency, for example, can have very high rates of return.

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Section: Pimi Scorementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Some Misconceptions about Public Investment Efficiency and Growth

et al. 2015

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“…They channeled most of oil export revenues into their domestic economies resulting in appreciation of their real exchange rates, in rapid expansion of imports of goods and services, in weakening the non-oil sector, in inefficient (and often corrupt) management of the public sector, etc. The empirical research (Gupta et al, 2011) also indicates that the productivity of the accumulated capital stock often falls short of what policymakers envision at the time of allocating funds to infrastructure investments. This implies that policymakers should give a higher weight to accumulating financial assets if these assets have a safer return.…”

Section: Focus Of Analysismentioning

confidence: 88%

A practical approach to oil wealth management: Application to the case of Kazakhstan

Aitzhanova¹,

Iskaliyeva²,

Krishnaswamy³

et al. 2015

Energy Economics

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“…16 measures the quality of input process. Despite this, Gupta et al (2014) normalize the index on a 0-1 scale and use it as a measure of efficiency-adjusted public capital effects on growth based on a sample of 52 countries. They find that upper middle-income countries have on average 57% efficient public capital stock against 46% for lower middle-income countries, and 38% for low-income countries.…”

Section: Iei Versus Other Measures Of Public Investment Efficiencymentioning

confidence: 99%

Assessing the Effect of Public Capital on Growth: An Extension of the World Bank Long-Term Growth Model

Devadas¹,

Pennings²

2018

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To analyze the effect of an increase in the quantity or quality of public investment on growth, this paper extends the World Bank's Long-Term Growth Model (LTGM), by separating the total capital stock into public and private portions, with the former adjusted for its quality. The paper presents the Long-Term Growth Model Public Capital Extension (LTGM-PC) and accompanying freely downloadable Excel-based tool. It also constructs a new Infrastructure Efficiency Index (IEI), by combining quality indicators for power, roads, and water as a cardinal measure of the quality of public capital in each country. In the model, public investment generates a larger boost to growth if existing stocks of public capital are low, or if public capital is particularly important in the production function. Through the lens of the model and utilizing newly-collated cross-country data, the paper presents three stylized facts and some related policy implications. First, the measured public capital stock is roughly constant as a share of gross domestic product (GDP) across income groups, which implies that the returns to new public investment, and its effect on growth, are roughly constant across development levels. Second, developing countries are relatively short of private capital, which means that private investment provides the largest boost to growth in low-income countries. Third, low-income countries have the lowest quality of public capital and the lowest efficient public capital stock as a share of gross domestic product. Although this does not affect the returns to public investment, it means that improving the efficiency of public investment has a sizable effect on growth in low-income countries. Quantitatively, a permanent 1ppt GDP increase in public investment boosts growth by around 0.1-0.2ppts over the following few years (depending on the parameters), with the effect declining over time.

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Efficiency-Adjusted Public Capital and Growth

Cited by 33 publications

References 30 publications

Some Misconceptions about Public Investment Efficiency and Growth

Some Misconceptions about Public Investment Efficiency and Growth

A practical approach to oil wealth management: Application to the case of Kazakhstan

Assessing the Effect of Public Capital on Growth: An Extension of the World Bank Long-Term Growth Model

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