THE PUBLIC–PRIVATE INVESTMENT NEXUS IN INDIA: EVIDENCE FROM A POLICY SIMULATION APPROACH

Sajad Ahmad Bhat, Javed Ahmad Bhat and Taufeeq Ajaz

Economic Annals, 2020, vol. 65, issue 224, 101 - 128

Abstract: This study investigates the influence of public investment on private investment in India, at both the aggregate and Sectoral levels and under two different modes of deficit financing – monetisation and commercial borrowing – in an eclectic macroeconometric modelling framework. Using Generalised Method of Moments (GMM), the two simulation exercises con-ducted in the study highlight the crowding-in effect of public investment on aggregate private investment, irrespective of the mode of financing. The favourable accelerator effect and the complementary effect are found to outweigh the deleterious interest effect in both simulation exercises. At the Sectoral level, public investment is found to most strongly and positively affect private investment in manufacturing, followed by agriculture, the service sector, and finally infrastructure. The impact of public invest-ment on the other sectors included in the model accords well with theoretical expec-tations.

Keywords: Public investment; Private investment; crowding in; crowding out; In-dia (search for similar items in EconPapers)
JEL-codes: C15 C51 E22 (search for similar items in EconPapers)
Date: 2020
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