Public, Private and Foreign Investment Nexus in the Republic of North Macedonia: Crowding-in or Out Effect?

Abstract

The levelsof investments in North Macedonia have beenperceived for a long time assub-optimal, with significant capital budget bias, with regularly overestimated plans vs. outturn. The research problem elaborated is whether the structure of investments matters. Thus the objectiveof the article is to examine if there is a complementarity or substitutability between public and private investment, as well as the role of foreign direct investments in this nexus. Within the paperthe hypothesis of existence of crowding-in or crowding-out effectof the public investmentand foreign direct investment exert over private investment in North Macedoniais tested. The crowding-in and –out effect is tested with an autoregressive distributed lag bound testing. The results indicate crowding-out effect of public over private investments,with significanceof the foreign direct investments variable and at the same time crowding-in effect of foreign direct investments over private domestic investments. The crowding-out effect is immediate and short run.The results imply of a need for closer examination of the fiscal policies for public investment with efforts for improved public investment performance processes.