Optimal public investment, growth, and consumption: Evidence from African countries

A.K. Fosu, Y.Y. Getachew, T.H.W. Ziesemer

Research output: Contribution to journalArticleAcademicpeer-review

182 Downloads (Pure)

Abstract

This paper develops a model positing a nonlinear relationship between public investment and growth. The model is then applied to a panel of African countries, using nonlinear estimating procedures. The growth-maximizing level of public investment is estimated at about 10% of GDP, based on System GMM estimation. The paper further runs simulations, obtaining the constant optimal public investment share that maximizes the sum of discounted consumption as between 8.1% and 9.6% of GDP. Compared with the observed end-of-panel mean value of no more than 7.26%, these estimates suggest that there has been significant public underinvestment in Africa. © Cambridge University Press 2015.
Original languageEnglish
Pages (from-to)1957-1986
Number of pages30
JournalMacroeconomic Dynamics
Volume20
Issue number8
DOIs
Publication statusPublished - Dec 2016

Keywords

  • Economic Growth
  • Nonlinearity
  • Public Investment
  • ENDOGENOUS GROWTH
  • STATES
  • SYSTEM GMM
  • LONG-RUN
  • FISCAL-POLICY
  • ESTIMATOR
  • RUN ECONOMIC-GROWTH
  • TOO
  • INFRASTRUCTURE
  • PANEL-DATA MODELS

Cite this