Dynamic Effects of Public and Private Investments: VAR Evidence from Six Advanced Economies

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Dynamic Effects of Public and Private Investments: VAR Evidence from Six Advanced Economies

Journal Title: İzmir İktisat Dergisi - Year 2019, Vol 34, Issue 2

Abstract

This paper investigates the long-term dynamic relationship between public and private investments and evaluates their impacts on economic activity in six advanced economies; France, Germany, Japan, Belgium, the United Kingdom and United States by a VAR framework. The related literature mostly considers the contribution of public investment to the formation of private investment and economic activity. This paper also evaluates the other way around: impacts of private investment on the formation of public investment and economic activity. Orthogonal identification assumptions are imposed to have an interpretable causal impulse-response functions. The empirical results provide evidences that public investment significantly contributes to private investment; however, the reverse is not true. That is, there is no any support for the hypothesis that private capital is also a crucial factor that drives public capital formation. Additionally, private investment always contributes more to output growth and employment than public investment. Finally, the empirical results are not sensitive to the alternative VAR orders of the variables under the assumption that public investment is exogenous with respect to other variables employed in this study.

Authors and Affiliations

Oğuz TÜMTÜRK

Keywords

EP ID EP654820
DOI 10.24988/ije.2019342837
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