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Public Investment and Endogenous Growth in a Small Open Economy

George Alogoskoufis () and Sarantis Kalyvitis ()

No 1479, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper examines the effects of three alternative rules for public investment on output growth in a model with private and public capital. The rules considered are: (i) a fixed ratio of public capital to output; (ii) a fixed growth rate for public capital; and (iii) a fixed ratio of public investment to output. We find that all these rules are closely associated with the growth rate of output and generate endogenous growth. A permanent change in the policy rule implies a new long-run growth rate of output, but the economy will only gradually approach the new steady state due to adjustment costs in private capital accumulation.

Keywords: Adjustment Costs; Endogenous Growth; Public Private Capital (search for similar items in EconPapers)
JEL-codes: H54 O41 (search for similar items in EconPapers)
Date: 1996-09
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