Public Investment in Developing Countries: A Blessing or a Curse?

Eduardo Cavallo and Christian Daude

No 1631, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: This paper analyzes the impact of public investment on private investment in 116 developing countries between 1980 and 2006. It finds a strong crowding-out effect that seems to be the norm rather than the exception, both across regions and over time. This effect is dampened (or even reversed) in countries with better institutions that are more open to international trade and financial flows. These results confirm that while public infrastructure may complement private capital, distortions associated with the public investment process might crowd out private investment in the course of building public capital stocks. These distortions are more prevalent in countries with weak institutions or closed economies.

Keywords: WP-648 (search for similar items in EconPapers)
JEL-codes: E22 H41 H54 O16 (search for similar items in EconPapers)
Date: 2008-10
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Citations: View citations in EconPapers (76)

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Related works:
Journal Article: Public investment in developing countries: A blessing or a curse? (2011)
Working Paper: Public Investment in Developing Countries: A Blessing or a Curse? (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:1631

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