Economic Growth Effects of Public and Private Investment: Evidence from Dynamic Panel Estimation for Developed and Developing Countries

Abstract

We examine the growth effects of public and private investment by using data for a large sample of countries. For the full sample, our dynamic panel estimations indicate that both public and private investment have strong positive effects on growth. Our estimations for income levels also show that the impacts of both public and private investment are positive and statistically significant for developing countries. Interestingly, public and private investment promote growth in developing countries with effective and ineffective governments. It seems that countries can significantly benefit from investment regardless of their institutional quality levels. Furthermore, the effect of public investment generally appears to be larger than that of private investment. Given the robust relationship between investment and growth in both ineffective and effective developing countries, an important policy implication of our study is that both types of investment should be encouraged to foster economic growth.

Do Inflation, Exchange Rate, Interest Rates, Tourist Visits, Government Spending and Investment Affect Indonesia’s Economic Growth?

“…Similar research was conducted by [8] under the title "Institutions and the impact of government spending on growth," based on a study on public and private investment encouraging economic growth in developing countries with effective governance and the influence of investment. A subsequent study was undertaken by [9] under the title "Tourism and economic growth: Comparing Malaysia and Singapore," based on the previous research findings indicating tourism had a positive correlation with economic growth.…”