The Crowding-in/ out Debate in Investments in India: Fresh Evidence from NARDL Application

Abstract

The purpose of the study is to re-examine the issue of the crowding-in/out effect of public investment on private investment by adopting an improved methodology of the ‘nonlinear autoregressive distributive lag’ (NARDL) model. Taking data from 1970 to 2016, the study finds that public investment crowds-in private investment both in the long-run as well as the short-run. However, the short-run elasticity is statistically more significant and larger in magnitude than the long-run elasticity. It has also been found that macroeconomic uncertainty significantly affects private investment both in the long-run and the short-run. Among other determinants of private investment, we observe foreign direct investment (FDI) inflow, credit flow to the private sector, household savings, real rate of interest and expected output affect private investment significantly. The policy implication of the study calls for the designing of public sector policies that enthuse more private investments. More credit flow to private sectors and FDI in different sectors of the economy should be prioritized. JEL Codes: E22, H54, C32

Government fiscal spending and crowd-out of private investment: An empirical evidence for India

“…The results at aggregate level are presented in Table 3. The long run estimated coefficients of public investment is positive (ranged from 0.78 to 1.14) and statistically significant across the models; indicate a complementarity between private and public investment; in line with the previous studies of Muthu (2017), Bahal et al (2018) and (Akber et al, 2020) for India. The net credit flow and cost of credit impact positively, imply that private investment in long-run is insensitive to interest rate with adequate credit flow.…”

“…Moreover, underscoring importance of reforms, Bahal, Raissi, and Tulin (2018) argue for complimentary relationship only with restricted dataset, post 1980. Recently, estimation using non-linear ARDL also argues investment complementarity for India in long and short-run controlling foreign direct investment, expected output and interest rate (Akber et al, 2020).…”

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

“…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).…”