The relationship between public capital stock, private capital stock and economic growth in the Latin American and Caribbean countries

Abstract

In this study, we analysed the relationship between public capital stock, private capital stock and economic growth for a group of 30 Latin American and Caribbean countries from 1970 to 2014. To achieve our goals, the panel vector autoregression methodology, panel dynamic ordinary least squares and panel fully modified ordinary least squares estimators were used. The results from our estimations point to both public and private capital having a positive effect on the long-run economic growth of the countries in our sample. However, the results also point to public capital seeming to crowd private capital in the short run, which could consequently be one of the explanations for the adverse effect that public capital stock seems to have on growth. (A result which was also found in the short-run analysis.) These findings suggest that governments in Latin America and the Caribbean should continue to support public and private investment projects, given the positive effect that both types of capital seem to have on the long-run economic growth of these countries. However, some changes should be made in the planning and execution of such investments in order to avoid some undesirable effects that seem to exist, especially in the short run.