Public Investment in Developing Countries: A Blessing or a Curse?
This paper analyzes the impact of public investment on private investment in 116 developing countries between 1980 and 2006. It finds a strong crowding-out effect that seems to be the norm rather than the exception, both across regions and over time. This effect is dampened (or even reversed) in countries with better institutions that are more open to international trade and financial flows. These results confirm that while public infrastructure may complement private capital, distortions associated with the public investment process might crowd out private investment in the course of building public capital stocks. These distortions are more prevalent in countries with weak institutions or closed economies.
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| Format: | Working Papers biblioteca |
| Language: | English |
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Inter-American Development Bank
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| Subjects: | Economy, E22 - Investment • Capital • Intangible Capital • Capacity, H41 - Public Goods, H54 - Infrastructures • Other Public Investment and Capital Stock, O16 - Financial Markets • Saving and Capital Investment • Corporate Finance and Governance, WP-648, |
| Online Access: | http://dx.doi.org/10.18235/0010897 https://publications.iadb.org/en/public-investment-developing-countries-blessing-or-curse |
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| Summary: | This paper analyzes the impact of public investment on private investment in 116 developing countries between 1980 and 2006. It finds a strong crowding-out effect that seems to be the norm rather than the exception, both across regions and over time. This effect is dampened (or even reversed) in countries with better institutions that are more open to international trade and financial flows. These results confirm that while public infrastructure may complement private capital, distortions associated with the public investment process might crowd out private investment in the course of building public capital stocks. These distortions are more prevalent in countries with weak institutions or closed economies. |
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