Optimal public investment, growth, and consumption: Fresh evidence from African countries

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

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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
percent 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 percent and
9:6 percent of GDP. Compared with the observed end-of-panel mean value
of no more than 7:26 percent, these estimates suggest that there has
been significant public under-investment in Africa.
Original languageEnglish
Place of PublicationMaastricht
Publication statusPublished - 1 Jan 2014

Publication series

SeriesUNU-MERIT Working Papers

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