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
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)
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