The Effects of Public Investment on Sustainable Economic Growth: Empirical Evidence from Emerging Countries in Central and Eastern Europe

Abstract

The relationship between sustainable growth and public investment, considered one of the key factors, is a topic of interest in the context of globally adopted sustainable development strategies and current budgetary constraints, especially in the case of tight budgets in developing countries, which constrain public investment more than current expenditure, for political or other reasons. Although there are endogenous growth patterns that incorporate public spending as a factor that promotes growth, the findings in the empirical literature provide contradictory results. The study is an empirical investigation into the effects of public investment on sustainable economic growth in emerging EU and Central European countries. For the period 1995–2019, the research shows that, in most of the countries included in the sample, the long-term impact of a public capital shock on GDP is estimated to be negative. The analysis of the effect of public investment on sustainable economic growth was performed by applying the VAR model and impulse response functions, the results being confirmed by estimating the accumulated multiplier to obtain the GDP response to a shock equal to a standard deviation of public capital.

The Importance of Green Investments in Developed Economies—MCDM Models for Achieving Adequate Green Investments

“…A crucial role of public funds is to encourage private investment. Ocolisanu et al [45] confirm a strong positive correlation between public and private investment (crowd-in or crowd-out effect). In a broader context, public funds can include large and small businesses, mutual funds, pension funds, individual investors, and non-profit organizations.…”

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“…Tantangan yang dihadapi oleh negara-negara berkembang sangat beragam. Mereka harus mengatasi ketidaksetaraan ekonomi yang tinggi, ketimpangan sosial, akses terbatas ke pendidikan dan layanan kesehatan, serta dampak negatif pembangunan terhadap lingkungan alam (Ocolișanu et al, 2022). Selain itu, faktor-faktor global seperti fluktuasi harga komoditas dan perubahan iklim juga berdampak pada upaya pembangunan di negara-negara ini.…”

Untitled

“…Without going into detailed considerations on the model of functioning of the public sector in the economies of various countries, a common feature of public sector entities can be considered involvement in many areas of investment activity, which largely affects changes in development conditions in the short and long term (McCartney, 2015). Undertaking research on the financial dimension of public investments, on the one hand, leads to focusing on identifying appropriate sources of financing in order to secure funds for the implementation of these investments, on the other hand, it should concern the role of investment outlays, considered as a development impulse on the scale of the national economy of a given country, or the regional dimensions of a given economy (Ocolisanu et al, 2022).…”