Crowding-in and Crowding-out Effects of Public Investments in the Portuguese Economy

João Andrade and António Portugal Duarte

No 2014-24, GEMF Working Papers from GEMF, Faculty of Economics, University of Coimbra

Abstract: This study analyses the effects of public and private investment on Portuguese GDP in the period 1960-2013. After a brief review of the literature based on works developed primarily in the context of VAR analyses, such as those by Pereira and Andraz (2005), and Afonso and St Aubyn (2008), an alternative econometric strategy is proposed. The use of VAR models to estimate the magnitude of crowding-in and crowding-out effects associated with these two components of investment has not been robust. So, we opted for the use of ADL models to estimate the behavioral equations of four variables: output, private investment, public investment, and the real exchange rate. For each of the four equations considered in this study the methodology of Krolzig-Henry (2001, 2005) was applied. Additionally, we also estimate a system of simultaneous equations by the SUR method and calculate the multipliers of the exogenous variables, represented by the current external transfers and the short-run nominal interest rate. Additionally, we tested a model with the first three equations of the system, using the real exchange rate as an exogenous variable. The results point to the existence of a complementarity between private investment and public investment rather than any idea of substitutability. Public investment has positive effects on output and on private investment. The appreciation of the real exchange rate does not have a very significant impact on private and public investment, but it does have a long-lasting negative effect upon output, confirming the presence of a Dutch-disease phenomenon in the Portuguese economy.

Keywords: Crowding-in; crowding-out; Portuguese Economy; private investment; public investment; ADL and SUR. (search for similar items in EconPapers)
JEL-codes: C32 E22 E62 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2014-12
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Crowding-in and crowding-out effects of public investments in the Portuguese economy (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:gmf:wpaper:2014-24.

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