Private investment and economic growth in developing countries

Abstract

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

A Model of Adjustment and Growth: An Empirical Analysis

“…While this variation of the incremental capital output relationship meets the criteria of simplicity, which makes it applicable even in countries with limited data, it has the considerable drawback of being unstable over time. Projections of output growth based on variants of a production function are routinely subject to large and variable errors, and yet a neoclassical 9This average is hi&her than the 0.2 value~btained by Khan and Reinhart (1990) for a cross-section sample of 24 developmg countries but is in line with Tyler (1981), who obtained a value of 0.25. Balassa (1978) found the marginal product to be about 0.16.…”

“…As in Robinson (1971), International Monetary Fund (1988, and Khan and Reinhart (1990), the growth function estimated takes the form…”

Private and Public Investment in Africa: A Time-Series Cross-Country Analysis

“…Using the case of developed economy in 1980s, (Aschauer, 1989) shows that the decreasing in public infrastructure expenditures confirms that the part of the productivity does not increase. A large part of literature and researches that analyzed whether public capital leads to participate in increasing output growth and/or the productivity of private investment have followed these studies: (Munnell, 1990;Khan & Reinhart, 1990;Barro, 1990;Easterly & Rebelo, 1993;Tatom, 1991Tatom, , 1993Evans & Karras, 1994a, 1994bRamirez, 1998;Khan & Kumar, 1997).…”

“…5;2014 growth. The authors who have contributed to investment analysis in Africa are: Oshikoya (1994), Mlambo and Oshikoya (1999), Devarajan et al (1999), Mataya and Veeman (1996), Khan and Reinhart (1990), and Gunning and Mengistae (1999). Writing on the macroeconomic determinants of domestic private investment in Africa, Oshikoya (1994) found a positive relationship between public investment and private investment.…”

Dynamic Relationship between Gross Domestic Product and Domestic Investment in Rwanda

“…Recent empirical studies have established linkages between investment and economic growth (e.g., Barro, 1991;Barro & Lee, 1993;Ben-David, 1998;Collier & Gunning, 1999;Ghura & Hadjimichael, 1996;Hernandez, 2000;Khan & Reinhart, 1990;Ndikumana, 2000). Analysis of causality between economic growth and domestic investment conducted in different countries are marred with ambiguities and inconclusive results.…”