A recent but rapidly growing empirical literature focuses on the relationship between public and private capital. But for the most part, it ignores the heterogeneity of public investment. In many countries, especially in the developing world, public investment includes not only basic infrastructure projects, but also commercial and industrial projects similar to those undertaken by the private sector. And those two types of public investment are likely to have quite different effects on the accumulation of private capital. Using data from India, the author examines this issue empirically by implementing a simple analytical model encompassing two types of public capital. The empirical results show that in the long run capital for public infrastructure projects crowds in private capital - other types of public capital have the opposite effect. But in the short run, both kinds of public investment may crowd out private investment.
Details
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Author
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Document Date
1996/05/31
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Document Type
Policy Research Working Paper
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Report Number
WPS1613
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Volume No
1
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Total Volume(s)
1
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Country
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Region
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Disclosure Date
2010/07/01
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Disclosure Status
Disclosed
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Doc Name
Does public capital crowd out private capital? : evidence from India
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Keywords
private capital stock;private investment;elasticity of substitution in consumption;relative price of investment good;relative price of capital;Macroeconomics and Growth;Macroeconomics & Growth;parameter of interest;public infrastructure investment;test statistic;standard error;real interest rate;speed of adjustment;water and sewage;degrees of freedom;fixed capital stock;private sector activity;barriers to capital;real wage;productivity of capital;private sector leadership;allocation of labor;rate of growth;public investment data;private sector expansion;public sector employment;foreign exchange crisis;machinery and equipment;human capital formation;public infrastructure service;public investment expenditure;outstanding public debt;public enterprise sector;real discount rate;linear time trend;public investment program;loss of information;power and water;availability of finance;cost of finance;public sector activity;tax at rate;portion of total;adequate regulatory framework;labor force growth;small scale industry;0 hypothesis;private good;private production;capital good;basic infrastructure;real credit;infrastructure capital;private consumption;empirical study;simple model;parameter estimate;commercial activity;corporate investment;real gdp;informal sector;
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Citation
Serven,Luis
Does public capital crowd out private capital? : evidence from India (English). Policy, Research working paper,no. WPS 1613 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/652401468771639280/Does-public-capital-crowd-out-private-capital-evidence-from-India