Public Investment and Growth: testing the non-linearity hypothesis

Trish Kelly

International Review of Applied Economics, 1997, vol. 11, issue 2, 249-262

Abstract: This article explores the relationship between public investment and growth among 56 low and middle income nations during the 1980s. The theoretical grwoth iterature emphasizes that initial increments of public capital raise growth but, at some point, additional increments of public capital inevitably reduce growth by creating distortions in the private sector. Despite the provalence of the non-linearity hypothesis, the article undertakes the first econometric test of the hypothesized non-linear relationship between public investment and growth. The article's econometric analysis does not support the public investment non-linearity hypothesis. The article concludes that crowding out concerns may have been overstated in the literature.

Date: 1997
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DOI: 10.1080/02692179700000016

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