The Macroeconomic (and Distributional) Effects of Public Investment in Developing Economies

October 20, 2017

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Format: Chicago

Davide Furceri, and Grace B Li. The Macroeconomic (and Distributional) Effects of Public Investment in Developing Economies, (USA: International Monetary Fund, 2017) accessed November 5, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper provides new empirical evidence of the macroeconomic effects of public investment in developing economies. Using public investment forecast errors to identify unanticipated changes in public investment, the paper finds that increased public investment raises output in the short and medium term, with an average short-term fiscal multiplier of about 0.2. We find some evidence that the effects are larger: (i) during periods of slack; (ii) in economies operating with fixed exchange rate regimes; (iii) in more closed economies; (iv) in countries with lower public debt; and (v) in countries with higher investment efficiency. Finally, we show that increases in public investment tend to lower income inequality.

Subject: Conventional peg, Exchange rate arrangements, Expenditure, Fiscal multipliers, Public investment spending

Keywords: Investment, Investment shock, Public investment, WP

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/217
Stock No:

WPIEA2017217
ISBN:

9781484320709
ISSN:

1018-5941

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