Do High and Volatile Levels of Public Investment Suggest Misconduct? The Role of Institutional Quality

This paper investigates the impact of institutional quality on public investment levels over the period 1984-2008. Moreover, it studies how the volatility of public investment and the quality of infrastructure are affected by institutional quality, and explores the contribution of other critical factors. The findings suggest an inverse relationship between public investment levels and institutional quality, supporting the idea that governments use public investment as a vehicle for rent-seeking or to compensate for the fall in private investment due to the poor business environment. In addition, aid flows, revenues and abundance of natural resources contribute positively to the level of capital spending. The author also finds that high volatility of public investment is associated with a lower quality of governance. An increase in revenues is associated with a reduction in the volatility of capital spending, suggesting that proper macroeconomic management smoothes the investment cycle. Finally, the paper provides some tentative evidence of a positive relationship between institutional quality and the quality of infrastructure.

Bibliographic Details

Main Authors:	Grigoli, Francesco, Mills, Zachary
Language:	English
Published:	2011-07-01
Subjects:	ACCOUNTING, ADVANCED ECONOMIES, AFFILIATED ORGANIZATIONS, AUCTIONS, AUTARCHY, BANK POLICY, BID, BOND, BUSINESS CYCLE, BUSINESS ENVIRONMENT, CAPITAL ACCUMULATION, CAPITAL INVESTMENT, CAPITAL STOCK, CHECKS, CIVIL WAR, COMMODITY, COUNTRY DUMMIES, COUNTRY FIXED EFFECTS, COUNTRY RISK, CURRENT ACCOUNT SURPLUSES, DATA AVAILABILITY, DEBT, DEBT SERVICE, DEMOCRACIES, DEMOCRACY, DEMOCRATIC ACCOUNTABILITY, DEVELOPING COUNTRIES, DEVELOPMENT BANK, DISBURSEMENTS, DOMESTIC MARKETS, DUMMY VARIABLE, ECONOMETRICS, ECONOMIC GROWTH, ECONOMIC PERFORMANCE, ECONOMICS, EFFICIENCY OF CAPITAL, ELECTRICITY, EMERGING ECONOMIES, EXCHANGE CONTROLS, EXPENDITURE, EXPENDITURES, EXPORTERS, EXPROPRIATION, FINANCIAL ACCOUNTABILITY, FINANCIAL CRISIS, FINANCIAL MANAGEMENT, FISCAL PERFORMANCE, FISCAL POLICY, FIXED CAPITAL, FOREIGN INVESTMENT, FRAUD, GOVERNANCE INDEX, GOVERNANCE INDICATOR, GOVERNANCE INDICATORS, GOVERNMENT EXPENDITURE, GOVERNMENT FINANCE, GROSS FIXED CAPITAL FORMATION, GROWTH RATE, INCOME, INFLATION, INFRASTRUCTURE INVESTMENT, INFRASTRUCTURE PROJECTS, INSTITUTIONAL CAPACITY, INSTRUMENT, INTERNATIONAL BANK, INTERNATIONAL MARKET, INVENTORY, INVESTING, INVESTMENT ACTIVITIES, INVESTMENT ACTIVITY, INVESTMENT DECISIONS, INVESTMENT MANAGEMENT, INVESTMENT NEEDS, INVESTMENT PROJECTS, INVESTMENT SPENDING, LEGAL SYSTEM, LEVY, LICENSES, LOW-INCOME COUNTRIES, MACROECONOMIC MANAGEMENT, MARKET PRICE, NATURAL RESOURCE, NATURAL RESOURCES, OUTPUT, OUTPUTS, POLITICAL DETERMINANTS, POLITICAL RISK, POLITICAL SYSTEM, POSITIVE COEFFICIENT, PRIVATE INVESTMENT, PRIVATE INVESTMENTS, PRIVATE INVESTORS, PRIVATE SECTOR, PUBLIC, PUBLIC ECONOMICS, PUBLIC EXPENDITURE, PUBLIC INVESTMENT, PUBLIC INVESTMENTS, PUBLIC SECTOR, PUBLIC SPENDING, PUBLIC WORKS, RATE OF RETURN, RENTS, REPUDIATION, RISK OF EXPROPRIATION, ROADS, SOCIAL PROTECTION, STOCKS, TAX, TELECOMMUNICATIONS, TELECOMMUNICATIONS INFRASTRUCTURE, TELEPHONE LINES, VOLATILE CAPITAL, VOLATILITY,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110929092625 https://hdl.handle.net/10986/3584
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