Empirical studies on the relationship between public and private investment and GDP growth

Abstract

This study performs empirical studies on the interaction between public and private investment and GDP growth for Japan and the USA. Since the data for each country used show features that are quite different from each other, empirical methods of GMM (Generalized Method of Moments) and OLS (Ordinary Least squares) are accordingly applied to Japan and the USA, respectively. The empirical results suggest that both public and private investment make great contributions to Japanese economic growth, while the US private investment seems to play a much more significant role than public investment.

Public and Private Investment and Economic Development in Iraq (1970-2010)

“…This outcome may not mean that real public investment is more efficient or productive than private investment in the context of Iraq, but might suggest that the presence of the ‗crowding-out' effect that depresses private investment; neither played its real role in the economy nor contributed this much in the RGDP. However, in both cases a percentage increase in any of these variables leads to an increase in real GDP, supporting theoretical propositions and previous empirical findings that both public and private investment have a positive impact on economic growth [9], [12], [21].…”

“…1 = 2 . However, if private investment is more efficient and productive than public sector investment, then the estimated coefficient on private investment would be larger than the public investment coefficient, such that 1 > 2 , [9], [10], [12], [38] in particular, emphasise that the importance of the relative size of 1 and 2 , as there remains some uncertainty about whether public sector investment encourages or depresses private investment.…”

“…Equation (1) (3), is the most commonly used model in research of this nature and it has been utilized in various studies associated with implementing this growth model in developing economies. Several empirical studies suggest that public and private investment should be distinguished, arguing that these two types of capital stock (public and private) have exhibited different functions and productivity [9], [10], [21], [37]. Therefore, the equation (3) can be rewritten as follows;…”

“…Therefore, the nature of the relationship between these two forms of capital is still the subject of much controversy [6], [19], [20]. Accordingly, the relative influence of public and private investment has been the subject matter of much research, largely confirming that they perform a different function and influence productivity differently [6], [9], [21].…”

“…However, some empirical literature [7]- [9] suggests that public investment may also ‗crowd out' private investment through over utilising scarce resources and reducing the aggregate amount of savings available for private investment; here, public investment is said to have an adverse effect on economic growth. In most developing economies, policymakers concerned with growth suggests that it is not only the aggregate level of the investment that matters for economic growth, but how to split between its public and private investments.…”