Public capital and distributional dynamics in a two-sector growth model

Getachew, Yoseph

doi:10.1016/j.jmacro.2009.12.009

Cited by 29 publications

(12 citation statements)

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“…Infrastructure capital and income inequality are negatively correlated in both AEs and EMDEs (Calderon and Serven 2014), although the presence of a causal relationship is still debated. Enhanced public infrastructure may reduce income inequality as well as promote growth if it benefits the poor more than proportionally (Ferreira 1995;Getachew 2010;Fournier and Johansson 2016).…”

Section: Macroeconomic Implications Of Public Investmentmentioning

confidence: 99%

“…Urbanization, in turn, has been associated with higher growth of output as well as labor productivity (Glaeser 2008;World Bank 2009;Dasgupta, Lall, and Lozano-Gracia 2014). Infrastructure capital appears to be inversely correlated with income inequality among EMDEs, although the direction of causality remains a matter of debate (Ferreira 1995;Getachew 2010;Calderon and Serven 2014).…”

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confidence: 99%

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Weakness in Investment Growth: Causes, Implications and Policy Responses

Kose¹,

Ohnsorge²,

Ye³

et al. 2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: Investment growth in emerging market and developing economies has slowed sharply since 2010. This paper presents a comprehensive analysis of the causes and implications of this slowdown and presents a menu of policy responses to improve investment growth. It reports four main results. First, the slowdown has been broad-based and most pronounced in the largest emerging markets and in commodity exporters. Second, it reflects a range of obstacles: weak activity, negative terms-of-trade shocks, declining foreign direct investment inflows, elevated private debt burdens, heightened political risk, and adverse spillovers from major economies. Third, by slowing capital accumulation and technological progress embedded in investment, weak post-crisis investment growth has contributed to sluggish growth of potential output in recent years. Finally, although specific policy priorities depend on country circumstances, policymakers can boost investment both directly, through public investment, and indirectly, by encouraging private investment, including foreign direct investment, and by undertaking measures to improve overall growth prospects and the business climate. JEL Classification Numbers: E22, F2, F6, O1, O4 Terms of use: Documents in

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Section: Macroeconomic Implications Of Public Investmentmentioning

confidence: 99%

mentioning

confidence: 99%

Weakness in Investment Growth: Causes, Implications and Policy Responses

Kose¹,

Ohnsorge²,

Ye³

et al. 2017

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“…In addition, the specific nature of the stochastic structure and the focus of the analyses are very different, especially since that literature does not address issues pertaining to public policy. In this last respect the paper is related to Getachew (2010Getachew ( , 2012 who considers public investment and inequality in endogenous growth models and imperfect credit markets, although that work is highly restrictive. First, it does not consider idiosyncratic uninsurable risk, the key element generating the non-degenerate wealth distribution.…”

Section: Introductionmentioning

confidence: 99%

Productive government spending and its consequences for the growth–inequality tradeoff

Getachew

Turnovsky

2015

Research in Economics

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This paper investigates the effects of productive government spending on the relationship between growth and inequality in an economy subject to idiosyncratic production shocks and heterogeneous endowments. Assuming lognormal distributions, we derive tractable closed form solutions describing the equilibrium dynamics. We show how the effect of government investment on the equilibrium dynamics of both inequality and growth depends crucially upon the elasticity of substitution between public and private capital in production. This has important consequences for the growth-and welfaremaximizing rates of government investment. Finally, we supplement our theoretical analysis with numerical simulations, calibrated to approximate the productive characteristics of a real world economy. With the empirical evidence strongly supporting the complementarity between public and private capital, our simulations suggest that conclusions based on the commonly employed Cobb-Douglas production function may be seriously misleading.Key words: Government investment; Idiosyncratic shocks; Growth; Inequality JEL Classification: D31, O41 Revised versionJune 2015*The paper has benefited from comments received on earlier versions from seminar participants at the University of Durham and the University of Pretoria. We also thank Santanu Chatterjee for useful suggestions. Research for this paper was carried out while Getachew was visiting the University of Washington in the Fall of 2013. Turnovsky"s research was supported in part by the Van Voorhis endowment at the University of Washington.**Corresponding author: sturn@u.washington.edu 1 IntroductionThe role of public investment in infrastructure as a source of economic growth continues to be widely debated in both developing and advanced economies, with different economies adopting different policy options. Several emerging-market countries including India, China, and Brazil have undertaken extensive public investment, to which their high growth rates of recent years may at least in part be attributed. In contrast, several European countries have reduced public spending, as they have pursued austerity measures intended to deal with concerns related to their rising debt levels.Contemporaneously with these diverse policies toward public investment, we have witnessed increasing income inequality, both in emerging markets and in most OECD countries. This raises the important question that we address in this paper, namely the relationship between public investment directed toward growth enhancement and its consequences for income inequality.Interest in the relationship between public investment, output, and growth has a long history, dating back to Arrow and Kurz (1970), who examined it in the context of a neoclassical economy.Beginning with Barro (1990), an extensive literature has evolved addressing the issue in an endogenous growth framework, with a general consensus that government spending on infrastructure can yield significant productivity gains and thus enhance growth. See e.g. F...

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“…It is also related to the limited literature of public investment and distribution (e.g., Garcia-Penalosa and Turnovsky, 2007;Getachew, 2010). There is also a vast literature that studies the relationship between public education and income distribution, which this paper may also be related to (e.g., Glomm and Ravikumar, 1992).…”

Section: Introductionmentioning

confidence: 93%

Distributional effects of public policy choices

Getachew

2012

Economics Letters

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The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-pro t purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. AbstractThis paper examines the effects of a budget-neutral public spending allocation between public investment and private investment subsidy on inequality dynamics and intergenerational mobility in an environment with heterogenous households and incomplete capital market.

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Public capital and distributional dynamics in a two-sector growth model

Cited by 29 publications

References 31 publications

Weakness in Investment Growth: Causes, Implications and Policy Responses

Weakness in Investment Growth: Causes, Implications and Policy Responses

Productive government spending and its consequences for the growth–inequality tradeoff

Distributional effects of public policy choices

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