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Public and Private Investments: A VAR Analysis of Their Impact of Economic Growth in 18 Advanced Economies

Author

Listed:
  • António Afonso
  • Jorge Caiado
  • Omar Al. Kanaan
Abstract
This paper examines the macroeconomic returns on public and private investments in 18 advanced economies from 1965 to 2019, using a Vector Autoregressive (VAR) approach. We assess whether higher investment levels drive economic growth and explore the interplay between public and private investments, particularly regarding crowding-in and crowding-out effects. A sensitivity analysis, altering the order of investments in the VAR model, tests the robustness of the results and highlights the dynamic relationships between them. The findings show that private investment consistently stimulates growth, while public investment’s impact varies by country. The analysis underscores the importance of investment sequencing, suggesting the need for flexible policies and a deeper understanding of investment dynamics. This study contributes to the debate on public investment’s role in fostering growth and offers empirical insights for future economic policy and investment strategies.

Suggested Citation

  • António Afonso & Jorge Caiado & Omar Al. Kanaan, 2024. "Public and Private Investments: A VAR Analysis of Their Impact of Economic Growth in 18 Advanced Economies," CESifo Working Paper Series 11426, CESifo.
    • Handle: RePEc:ces:ceswps:_11426
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    public investment; macroeconomic rates of return; crowding-in/out;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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