Research Information System
ERC-ODTÜ Uluslararası Ekonomi Kongresi-V, Ankara, Turkey, 10 - 13 September 2001, pp.1-16
During the last two decades, the view about the role of the state has changed and policy
makers began to rely on private sector more heavily in promoting economic growth, thus ending the decades old state led growth in developing countries. The relationship between private investment and the rate of growth has been the subject of considerable research in recent years. An extensive body of both theoretical and empirical literature focuses on the relationship between the private investment and the rate of growth. Researchers try to find whether private investment has a larger effect on the rate of growth than that of public. Recent studies by Khan and Reinhart (1990) find statistical support for a larger contribution of private investment on growth while some other studies indicate that there is no statistically significant difference between the impact of public and private investment (Nazmi and Ramirez, 1997). However, existing studies either use time series data for a single country or cross-sectional data for a sample of developing countries using long-term averages of relevant variables. In this paper, following Khan and Reinhart (1990), a simple neoclassical growth model is used that separates the effects of public and private investment on growth. Using time series-cross sectional data for a group of low and middle-income countries the effects of public and private investment on growth is estimated. The findings suggest that private investment has a larger direct impact on growth than that of public.
JEL Classifications: C23; O40
Keywords: Private Investment; Public Investment; Economic Growth; Panel Data