Analysis of the Relationship Between Private Investment and Public Investment in Mexico

Abstract

The aim of this study is to identify the relationships between domestic private investment and domestic public investment in Mexico. The hypotheses are as follows: H1-Domestic public investment generates domestic private investment (period between 1993 and 2017); H2-Domestic public investment generates domestic private investment (period between 1993 and 2008); H3-Domestic public investment generates domestic private investment (period between 2009 and 2017). In order to analyze the relationship between the variables in this study we used the quarterly data series on public gross fixed capital formation (public GFCF) and private gross fixed capital formation (private GFCF) provided by the Mexican System of National Accounts, corresponding to the period between the first quarter of 1993 and the second quarter of 2017. In order to fulfill the aims of this study, the following stages were performed: identification of the time series models, using the methodology consisting of autoregressive integrated moving average models or ARIMA models; validation of the models identified; determination of the cross correlation function; and regression analysis of the transformed series. The main results of the study for the series from 1993 to 2017 show a statistically significant direct relationship between private investment and public investment. This confirms hypothesis 1: Domestic public investment generates domestic private investment (period between 1993 and 2017). The value of the Durbin-Watson statistic for this model is 2.103, meaning that the residuals are independent. The value of the constant in the model is not statistically significant. For the series from 1993 to 2008 there is a statistically significant direct relationship between private investment and public investment. This confirms hypothesis 2: Domestic public investment generates domestic private investment, and the residuals are independent. With regard to the results for the series from 2009 to 2017, there is a statistically significant direct relationship between private investment and public investment. This confirms hypothesis 3: Domestic public investment generates domestic private investment (period between 2009 and 2017). The value of the Durbin-Watson statistic for this model is 1.74, meaning that the residuals are independent. The value of the constant in the model is statistically significant.

Is there a nonlinear relationship between public investment and private investment? Evidence from 21 Organization for Economic Cooperation and Development countries

“…When investing in public goods, such as physical infrastructures or services, the government creates a prospect for companies to invest and an economic cycle of opportunity is generated (Aschauer, 1989a(Aschauer, , 1989b. A vast strand of the literature has thus been vindicating a significant and positive impact of public investment on private investment (e.g., Abiad et al, 2016;Argim on et al, 1997;Barbosa et al, 2016;Carrillo et al, 2018;Chipaumire et al, 2014;Dreger & Reimers, 2016;Pereira & Andraz, 2003).…”

“…Finding policy measures to stimulate it is a concern of decision‐makers. By promoting favourable conditions through the construction of infrastructures, public investment is decisive as one of such measures, instigating private investment activities, the crowding‐in effects (e.g., Abiad et al, 2016; Akber et al, 2020; Andrade & Duarte, 2016; Argimón et al, 1997; Barbosa et al, 2016; Carrillo et al, 2018; Dreger & Reimers, 2016; Pereira & Andraz, 2003). Afore this disagreement several authors argue that the type of impact public investment has on private investment is sensitive to the countries or even the period under inspection, reporting found mixed evidence on these effects (e.g., Afonso & Aubyn, 2019; Afonso & St. Aubyn, 2009; Agnello et al, 2013; Atukeren, 2005; Bahal et al, 2018; Nguyen & Trinh, 2018; Xu & Yan, 2014).…”

La Inversión Manufacturera Y El Lento Crecimiento De La Economía Mexicana a Partir De 1993

“…Se ha debatido extensamente si la inversión pública estimula o entorpece a la inversión privada y, por tanto, si incita o no el crecimiento general de la economía, pero sin llegar a conclusiones uniformes. En el pasado la inversión pública mostró importantes efectos multiplicadores sobre la inversión privada, y probablemente su atonía sería una causa del lento crecimiento, dado que -en su ausencia-los privados no encuentran en dónde encadenar sus proyectos (Nazim y Ramírez, 1997;Lächler y Aschauer, 1998;Ros, 2008;Ibarra, 2008;Fonseca, 2009;Gutiérrez, 2017;Bojórquez, Villasuso y Avilés, 2018;Terrones, Sánchez y Montaño, 2019;Gutiérrez, Moreno y Sánchez, 2021).…”