Fiscal Rule in Africa

During the late 1970s and early 1980s, many African countries experienced a profound slowdown in economic growth. The growth rate of real per capita GDP fell from 0.4% per year during the 1973-80 period to 1.2% per year during the 1980-89 period.' The causes-internal and external-of Africa's economic decline and the strategies for restoring economic growth are much debated. Nevertheless, broad consensus has emerged on the importance of (i) increasing total investment and (ii) promoting private-sector development and increasing its share of total investment for long-term growth.2 It is widely recognized that gross domestic investment fell substantially in Africa during the 1980s and remains severely depressed across the region. The proportion of total domestic investment in GDP fell from 20.8% per year during 1973-80 to 16.1% per year during 1980-89. In some countries, investment has fallen to less than 10% of GDP-a level that is insufficient even to replace depreciated capital. In Africa, the minimum investment needed to replace depreciated capital is estimated at 13% of GDP.3 In recent years, there has also been a growing recognition among many African leaders, faced with new realism and pragmatism, that the private sector could play a significant role in economic development. The focus in the longer term of structural adjustment programs and sectoral reforms adopted by these countries is on creating more appropriate incentives and a framework for private-sector development as the basis for achieving sustainable economic growth. In addition, multilateral and bilateral institutions have developed new initiatives with priorities for private-sector development. In 1989, the International Finance Corporation, an affiliate of the World Bank, es-

The study has estimated the extent of investment made in promotion of marketing infrastructure in the country and growth in public and private investments. It has also examined state-wise spread of private and public investments in agricultural marketing infrastructure, its composition and share and has investigated whether private investment induces pubic investment or vice versa. Of the total investment of Rs 157652.30 lakh made for the development of agricultural marketing infrastructure, Madhya Pradesh has accounted for the maximum (36%) share, followed by Tamil Nadu (18%) and Andhra Pradesh (13.5%). West Bengal has accounted for the lowest share. The analysis has indicated that there is a strong complementarity between private and public investments and as soon as private investment comes, public investment also starts pouring in. On investigating whether public investment is dependent on private investment or vice versa, the study has revealed that private investment induces public investment. The study has further indicated that in agricultural marketing infrastructure, private investment has taken a lead, which is a welcome change because private investment is more efficiently used as compared to public investment. To give further fillip to private investment in agricultural marketing infrastructure, the study has provided certain suggestions.

This paper analyzes investment behaviour in Malawi's private and public goods sectors between 1967 and 1988, taking into account partial liberalization and contractionary fiscal and monetary policies associated with the IMF-supported structural adjustment program. Numbers of studies on investment demand in developing countries have focused on whether or not public investment crowds out private investment. Public investment may compete with private investment for scarce physical and financial resources, at least in the short term. However, public investment is also expected to complement private investment by creating infrastructure and raising the productivity of private capital stock. Partial liberalization is expected to have a negative effect in the short-run on private investment due to inflationary pressure. Contractionary fiscal and monetary policies are expected to have a negative effect on public investment. II. THE ANALYSIS In this study, factors influencing both private and public investment are investigated, and the hypothesis that public investment affects private investment is tested. A variant of the neoclassical flexible accelerator model discussed by Haque, Lahiri, and Montiel (1990) is applied. Private investment is specified as a function of the price of capital relative to the wage rate, real output and the beginning-of-period capital stock. Due to difficulties with the measurement of capital stock in developing countries and the expected influence of public investment on private investment, the estimating model is modified. Following Blejer and Khan (1984), the desired stock of capital is assumed to be proportional to expected output and an adaptive expectations framework as suggested by Cagan (1956) is used to

PurposeThe purpose of this paper is to examine the crowding-in or crowding-out relationship between public and private investment in India.Design/methodology/approachThe autoregressive distributed lag (ARDL) bounds testing approach is used to estimate the long run relationship between public and private investment using annual data from 1971-1972 to 2009-2010.FindingsBased on the empirical findings, it is observed that aggregate public investment has a positive effect on private investment both in the long run and the short run. In contrast to the findings of previous studies, no significant impact of public infrastructure investment on private investments is found in the long run, while non-infrastructure investment has a positive impact on private investment in the short run. Among the various categories of infrastructure sector, a positive and significant impact in the case of electricity, gas and water supply is observed. Similarly, the result indicates that public investment in machinery and equipment and construction have substantially influenced the private sector machinery and equipment in the long run and the short run. In the case of the role of macroeconomic uncertainty, the results find a negative and significant impact on private investment and the impact is higher in the short run than in the long run.Originality/valueThe present study extends the literature in three important ways: First, the study attempts to capture heterogeneity of public investment as well as disaggregate effects of two different categories of public infrastructure on private investment. The extent to which two different types of public assets impact the private investment in machinery and equipment investment is also examined. Second, ARDL model is used to examine the long-run relationship between public and private investment. Third, the study incorporates macroeconomic uncertainty into the empirical analysis to examine the role of macroeconomic volatility in determining private investment decision.

The study examines the relationship between private and public investment in Zimbabwe utilizing yearly time series data for the period 1970 to 2007. Emphasis is placed on the direction of causality and the effect of the two types of investment on each other. The paper constructs empirical models for both private and public investment, based on the flexible accelerator theory. Private investment is found to be cointegrated with public investment. A cointergration approach and VEC model are employed to assess the short run relationship existing between public and private investment. The relationship between private and public investment is found to be insignificant and the direction of causality found to be unidirectional. The results support the notion that private investment precedes public investment.

Government's role in promoting the country's economy remains a relevant issue both in academics and politicians debates. Not only for individual countries but also for the European Union as a whole the promotion of high value-added activities, in particular in lower development small open economies which hardly recover from external economic shocks and experience significant social problems due to high unemployment level remains a relevant issue. The country's competitiveness and level of development, as well as the country's economy growth, depend on high value-added investment growth, and both private and public investments play a significant role in economy of each country. Government's role, in particular through the fiscal policy, in the promotion of these activities is crucial. The prevailing view in the scientific literature is that in developed countries public investment crowds out private investment, while in developing – crowds in, but it is not clear under what conditions these effects occur because the countries are very different. Also the effect of the taxes revenues and the government expenditure indicators on private investment is unclear because the effect of these variables on private investment has not been studied comprehensively. So the aim of the research is to evaluate the relationship between fiscal policy indicators, such as the government revenues from taxes and the government expenditure, and private investment comprehensively including indicators of macroeconomic environment in the Baltic States, by applying correlation and regression analysis. The conducted research revealed the existence of strong direct relationship between the fiscal policy indicators and private investment in the Baltic States, showing the importance of fiscal policy to private investment. During the analysis of detailed tax and expenditure indicators it has been established that the strongest relationship exists between the current taxes on income, wealth, etc and public investment with private investment. The current taxes on income, wealth, etc indicator explains about 86 percent of the private investment fluctuations and the gross fixed capital formation by public sector indicator explains about 80 percent of the private investment fluctuations in the Baltic States, whereas the effect of these indicators on private investment is analyzed separately, while macroeconomic indicators of a country explain only about 8-13 percent of the private investment fluctuations. DOI: http://dx.doi.org/10.5755/j01.ee.23.3.1934

To accelerate the GDP growth rate, the government of Bangladesh has been raising its public investment since late 2000s which is reflected in the rise of public investment-GDP ratio from 4.50% in 2008 to 6.90% in 2015. At the same time, private investment has remained stagnant since 2008, hovering around 22% of GDP. This trend of public and private investment suggests that public investment might have a crowding-out effect on private investment. Given this background, the main objective of this paper is to examine the relationship between public and private investment in Bangladesh over the period 1981-2015. To this end, we estimate a model in the autoregressive distributed lag bound testing framework using real private investment, real public investment, real GDP, and the real interest rate. In addition, since Bangladesh's trade and financial sectors went through intensive liberalization reform in the early 1990s, it warrants an investigation whether liberalization has any significant effect on the relationship between public and private investment. Hence, in this study, we pose an additional question of how the relationship between these two variables is affected by the liberalization of the financial and trade sectors - an issue received less attention in previous studies. To capture this effect, we extend our model by introducing a dummy variable for liberalization and an interaction term. Our results show that public investment negatively affects private investment both in the long run and short run, suggesting the existence of crowding-out. However, the crowding-out effect is partially neutralized by the favorable effect of liberalization. We also find that private investment is weakly sensitive to the real interest rate. These findings have important policy implications for both fiscal and monetary authorities. First, given the relatively large magnitude of crowding-out effect, it will be imperative for the fiscal authority to select those investment projects which have greater productivity and spillover effects so that crowding-out effect can be minimum. Second, the weak sensitivity of private investment to the interest rate points to a weak interest rate channel of monetary policy. Therefore, interest rate cut may not be successful in promoting private investment during economic down-turn. Third, as liberalization moderates the crowding out effect, Bangladesh can reap more benefit from public investment by removing the impediments to trade and financial deregulations.

Purpose: The aim of this study is to analyze the effects of public and private sector investments on gross domestic product (GDP) and employment econometrically with the panel data method in order to determine the efficiency of investments in Turkey. Design/Method/Approach: In the study, the possible effects of public and private sector investments on GDP and employment in Turkey are examined by dividing them into sectors. Sectors are included in the analysis as agriculture and other non-agricultural sectors. Since the data of various sectors within a certain time period are used, time series and horizontal cross-sectional data are analyzed using the panel data method, which allows them to be used together. Four different models are created in the research. Among them, the effects of public investment expenditures on GDP in the period of 2004-2020 in Model 1, private investment expenditures on GDP in the same period in Model 2, public investment expenditures on employment in the period of 2014-2021 in Model 3 and private investment expenditures on employment data in Model 4 are investigated. Findings: The results obtained from the analyses show that public and private sector investments have a significant and positive impact on GDP and employment in Turkey. Practical Implications: It is generally accepted in the public finance literature that investments will positively affect economic growth, production level, employment and regional development if they are used in productive areas. Originality/Value: What makes this study different from others is that the relationship of public and private sector investments with both GDP and employment is analyzed separately. In this way, a comparison can be made from the point of public and private sector investments in Turkey in terms of the contribution of investments to both GDP and employment, and an answer can be sought to the question of how correct the policy of increasing the share of the private sector in investments, especially in recent years, is in Turkey. Research Limitations/Future Research: This study will make a significant contribution to the literature on the economic effects of public and private sector investments. It will be determined how accurate the idea of increasing the share of private investments in Turkey in recent years is. According to the results obtained from the study, new studies will be conducted on what can be done to increase the efficiency of public or private sector investments. Disclaimer: This article was produced from the doctoral thesis prepared by Özgür Mustafa Ömür at Bursa Uludağ University Social Sciences Institute, Department of Finance, under the supervision of Prof. Dr. Filiz Giray. Paper Type: Empirical JEL Classification: E01, E22, E24, H54

We study the macroeconomic effects of public and private investment in 17 OECD economies through a VAR analysis with annual data from 1960 to 2014. From impulse response functions we find that public investment had a positive growth effect in most countries, and a contractionary effect in Finland, UK, Sweden, Japan, and Canada. Public investment led to private investment crowding o ut in Belgium, Ireland, Finland, Canada, Sweden, the UK and crowding-in effects in the rest of the countries. Private investment has a positive growth effect in all countries; crowds-out (crowds-in) public investment in Belgium and Sweden (in the rest of the countries). The partial rates of return of public and private investment are mostly positive. Our results are robust to the ordering of private and public investment in the VAR.

This paper provides new evidence to contribute to the current debate on the relative impact of public and private investment on economic growth and the crowding effect between the two components of investment in South Africa. Using annual data from 1970 to 2017, the study applies the recently developed Autoregressive Distributed Lag (ARDL)-bounds testing approach to cointegration. The study finds that private investment has a positive impact on economic growth both in the long run and short run, while public investment has a negative effect on economic growth in the long run. Further, in the long run, gross public investment is found to crowd out private investment, while its infrastructural component is found to crowd in private investment. The results of the study also reveal that both gross public investment and non-infrastructural public investment crowd out private investment in the short run. Overall, the study finds private investment to be more important than public investment in the South African economic growth process and that the importance of infrastructural public investment in stimulating private investment in the long run cannot be over-emphasized.

The main objective of this paper is to analyze the impact of public and private investment on labor productivity in Nepal using time series data from 1991-2021. By employing the Zivot-Andrews single break unit root test and Johansen cointegration analysis, a long-run stable relationship is found among public investment, private investment, and labor productivity. A VECM model is estimated to find that both public and private investment have a positive impact on labor productivity with a more significant and strong impact coming from the private investment in the long run. The nature of labor productivity and public investment is found to be endogenous and that of private investment is found to be weakly exogenous. Additionally, a Granger Causality Test is performed and the result shows that labor productivity and private investment cause public investment. To test the causation from public investment to labor productivity, a Pairwise Granger Causality Test is done and it is found that public investment causes labor productivity only at lags of 4 and 5 which confirms that public investment takes time to impact the labor market conditions. Policy implications are discussed.

This study performs empirical studies on the interaction between public and private investment and GDP growth for Japan and the USA. Since the data for each country used show features that are quite different from each other, empirical methods of GMM (Generalized Method of Moments) and OLS (Ordinary Least squares) are accordingly applied to Japan and the USA, respectively. The empirical results suggest that both public and private investment make great contributions to Japanese economic growth, while the US private investment seems to play a much more significant role than public investment.

The contention in the literature is the relative contribution of private and public investment on economic growth and whether the relationship is linear or non-linear. In addition, there is the issue of whether the impact of investment on economic growth changes depending on public and private investment Purpose. The study examines the relationship between investment (public and private) and economic growth in Nigeria over the period 1970-2016. Design/Methodology/Approach. The study employs Markov regime-switching approach developed by Hamilton (1989, 1990). Specifically, a multivariate dynamic Markov-switching model is estimated using maximum likelihood estimation techniques. The study employs annual time-series sourced from Central Bank of Nigeria, Statistical Bulletin and World Bank, World Development Indicator. Findings/Implications. The results show that the relationship between investment and economic growth is non-linear. Also, both public and private investments have a significant positive impact on economic growth. However, private investment contributes more to economic growth than public investment during the period of expansion. The reverse is the case during the period of contraction. The results support the basic neoclassical framework, with emphasis on savings and investment for analyzing long-term growth performance. Also, it is crucial to make a distinction between the impact of investment (public and private) on growth in two stages of growth. Originality. Government needs to be innovative by spending more during period of slump as more public investment will be required to pump prime the economy for increased private investment.

This study explored the interaction between private and public investments and its effect on economic growth in Nigeria over the period 1986 to 2021. The analysis utilized annual time series data, including real Gross Domestic Product (GDP), private investment (proxied by gross fixed capital formation), public investment (proxied by government capital expenditure), exchange rate, and interest rate spread. The Autoregressive Distributed Lag (ARDL) Bounds Testing approach was employed to examine the existence of both short-run and long-run relationships among the variables. The objective was to assess the effect of the interaction between private and public investment on economic growth. The empirical results revealed that the model variables were cointegrated, suggesting a stable long-term equilibrium relationship. Furthermore, the interaction between private and public investments were found to have a statistically significant impact on economic growth in both the short run and the long run, highlighting the complementary nature of these investment types. The study recommends that government policy should focus on enhancing the synergy between public and private investment through the provision of critical infrastructure at reduced economic costs. Also the creation of a business-friendly environment fosters sustainable economic growth in Nigeria.

We study the impacts of public investment, notably in construction and in R&D on economic growth and of crowding-out effects on private investment. For this purpose, we use Panel Vector Autoregression (PVAR) models and the Generalized Method of Moments (GMM) approach for 40 advanced and emerging countries from 1995 to 2019. Our findings are as follows: i) innovations in public investment have more positive effects on GDP growth and private investment in emerging economies; ii) the positive impulse of public investment on private sector is pronounced and significant in emerging economies; iii) government construction investment has a more positive effect on economic growth in emerging economies; iv) innovations in public construction crowd-out private investment spending in advanced countries; v) emerging economies benefit from public R&D investment; vi) the public investment multiplier of the full sample is 1.67, while it is 0.87 for advanced economies and 2.29 for emerging economies.