"Crowding in" and the Returns to Government Investment in Low-Income Countries
This paper estimates the effect of government investment on private investment in a sample of 39 low-income countries. Fluctuations in a predetermined component of disbursements on loans from official creditors to developing country governments are...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/02/19005742/crowding-returns-government-investment-low-income-countries http://hdl.handle.net/10986/17337 |
| Summary: | This paper estimates the effect of
government investment on private investment in a sample of
39 low-income countries. Fluctuations in a predetermined
component of disbursements on loans from official creditors
to developing country governments are used as an instrument
for fluctuations in public investment. The analysis finds
evidence of "crowding in": an extra dollar of
government investment raises private investment by roughly
two dollars, and output by 1.5 dollars. To understand the
implications for the return to public investment, a CES
production function with public and private capital as
inputs is calibrated. For most countries in the sample, the
returns to government investment exceed the world interest
rate. However, for some countries that already have high
government investment rates, the return to further
investment is below the world interest rate. |
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