Abstract
This study examines potential disparities in how specific adverse macroeconomic conditions impact variability in US private and public investment growth. Using quarterly time series data spanning the period 1960–2012 and array of econometric procedures such as ARDL-Bound Test technique etc.; effects of specific macroeconomic conditions such as recession and inflation expectations on private and public investment growth are estimated. Our results show that in the short run, only macroeconomic uncertainty and fiscal policy volatility among variables tested, drives significant fluctuations in private investment growth. This study also finds that recession expectations rather augments public investment growth in both the short and the long run; but constrains private investment growth in the long run. Additionally, comparative analysis further show that private investment growth tend to be more susceptible to adverse macroeconomic conditions tested in this study than public investment growth.
Highlights
This study investigates potential disparities in how private and public investment growth conditions respond to, or are impacted by specific macroeconomic conditions
This study finds that among macroeconomic conditions tested; only macroeconomic uncertainty and recession expectations are significant in explaining variability in both US private and public investment growth in the long run
Our results further suggest that effects of macroeconomic uncertainty and recession expectations on private investment growth tend to be more severe than effects on public investment growth
Summary
This study investigates potential disparities in how private and public investment growth conditions respond to, or are impacted by specific macroeconomic conditions. In a related study, Federer (1993) concluded that macroeconomic uncertainty has significant negative impact on US equipment investment growth These conclusions, which to some extent captures conditions in both developed and developing economies (as well as others to be discussed in later sections), suggest that apart from known traditional determinants of investment growth such as loan supply, interest rate etc., investment growth dynamics are inherently defined by prevailing macroeconomic conditions. This conclusion is supported to some extent by recent US economic performance data. Prevailing and projected macroeconomic conditions to a greater degree defines the extent of investment growth by impacting investor behavior
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