Role of Public Investment in Growth and Poverty Reduction in Transition Economies
DOI:
https://doi.org/10.6000/1929-7092.2016.05.27Keywords:
Public investment, Growth, Poverty, Transition economies.Abstract
This paper explores the linkages among public investment, growth and poverty in light of the existing theories, evidence and methods for 30 transition economies using the panel data for 1995-2010. Using Least Square Dummy Variable technique, we conclude that public investment is growth enhancing; furthermore, the impact is even higher if associated with foreign direct investment. However, public investment is still not strong enough to reduce poverty, poverty gap and inequality in income distribution. In case of the latter, it has rather worsening impact. But if public current expenditure is spent primarily on educational subsidies, this brings pro-poor growth impact.References
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Roy R., Heuty A., and Letouze E., 2006. “Fiscal Space for Public Investment: Towards a Human Development Approach”, Paper Prepared for the G-24 Technical Meeting, Singapore.
Sala-i-Martin X., 1997. “I Just Ran Two Million Regressions”, American Economic Review, 87 (2): 178–83.
Tsoukis C. and N. Miller., 2003. “Public Services and Endogenous Growth”, Journal of Policy Modeling, 25: 297-307.
http://dx.doi.org/10.1016/S0161-8938(03)00026-7
Turnovsky S. J., 2000. “Government policy in a stochastic growth model with elastic labor supply”, Journal of Public Economic Theory, 2(4): 389–433.
http://dx.doi.org/10.1111/1097-3923.00044
UNCTAD, 1999. “Foreign Direct Investment and the Challenge of Development”, Geneva, United Nation Publication.
Woodford M., 2011. “Simple Analytics of the Government Expenditure Multiplier”, American Economic Journal, 3:1–35.
http://dx.doi.org/10.1257/mac.3.1.1
Zandi M., 2011. “An Analysis of the Obama Jobs Plan”, Moody’s Analytics Dismal Scientist, online publication, September 9.
http://dx.doi.org/10.1016/j.jpolmod.2007.12.005
Agénor P.R., 2004. “The Economics of Adjustment and Growth”, second ed., Harvard University Press, Cambridge.
Agénor P.R., 2008. “Fiscal policy and endogenous growth with public infrastructure”, Oxford Economic Papers, 60(1): 57–87.
http://dx.doi.org/10.1093/oep/gpm018
Aschauer D., 2000. “Public Capital and Economic Growth: Issues of Quantity, Finance and Efficiency”, Economic Development and Cultural Change, 48 (2): 391–406.
http://dx.doi.org/10.1086/452464
Barro R., 1990. “Government Spending in a Simple Model of Endogenous Growth"", Journal of Political Economy, 98 (5): S103–S125.
http://dx.doi.org/10.1086/261726
Barro R., 1991. “Economic Growth in a Cross Section of Countries”, Quarterly Journal of Economics, Vol. 106: pp. 407–43.
http://dx.doi.org/10.2307/2937943
Binswanger H., Khandler S. and Rosenzweig M., 1993. “How Infrastructure and Financial Institutions Affect Agricultural Output and Investment in India”, Journal of Development Economics, 41: 337-66.
http://dx.doi.org/10.1016/0304-3878(93)90062-R
Calderon C. and Serven L., 2004. “The Effects of Infrastructure Development on Growth and Income Distribution”, Policy Research Working Paper No 3400.
Canning D. and Fay M., 1993. “The Effects of Transportation Networks on Economic Growth”, Working paper, Department of Economics, Columbia University.
Canning D. and Bennathan E., 2000. “The Social Rate of Return on Infrastructure Investments”, Policy Research Working Paper No 2390, Washington, DC, World Bank.
Cincera M. and Pamukçu M., 2007. “Foreign firms and technology spillovers in developing countries: the Turkish case”, UN UMERIT Conference on Micro Evidence on Innovation in Developing Economies, Maastricht, Netherlands.
Commission on Growth and Development, 2008. “The Growth Report: Strategies for Sustained growth and Inclusive Development”, IBRD/ The World Bank.
Congressional Budget Office, 2012. “Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from October 2011 through December 2011”. http://www.cbo.gov/publication/43013
Council of Economic Advisers, 2010. “The Economic Impact of the American Recovery and Reinvestment Act of 2009: Fourth Quarterly Report”. http://www.whitehouse.gov/files/ documents/cea_4th_arra_report.pdf
Datt G. and Ravallion M., 2002. “Is India’s Economic Growth Leaving the Poor Behind?”, Journal of Economic Perspectives, 16 (3): 89–108.
http://dx.doi.org/10.1257/089533002760278730
Devarajan S., Swaroop V. and Zou H., 1996. “The Composition of Public Expenditure and Economic Growth”, Journal of Monetary Economics, 37: 313–44.
http://dx.doi.org/10.1016/S0304-3932(96)90039-2
Durham, J.B., 2004. “Absorptive Capacity and the Effects of FDI and Equity foreign portfolio investment on economic growth”, European Economic Review, 48: 285-306.
http://dx.doi.org/10.1016/S0014-2921(02)00264-7
Easterly W., 2001. “The Elusive Quest for Growth: Economists, Adventures and Misadventures in the Tropics”, London, MIT Press.
EBRD, 2007. “Institutions, Markets and Economic Performance: What drives growth in the transition countries?”, Special Report, http://www.ebrd.com/pages/research/analysis/ publications.shtml
Fan S., Hazell P. and Thorat S., 1999. “Linkages between Government Spending, Growth and Poverty in Rural India”, Research Report 110, Washington, DC, IFPRI.
Fan S., Zhang L. and Zhang X., 2002. “Growth, Inequality and Poverty in Rural China: The Role of Public Investments”, Research Report 125, Washington, DC, IFPRI.
Fedderke J. and Bogetic Z., 2009. “Infrastructure and growth in South Africa: direct and indirect productivity impacts of 19 infrastructure measures”, World Development, 37(9): 1522-1539.
http://dx.doi.org/10.1016/j.worlddev.2009.01.008
Gomanee K., Morrissey O., Mosley P. and Verschoor A., 2003. “Aid, Pro-poor Government Spending and Welfare”, Research Paper 3, Nottingham, University of Nottingham, CREDIT.
Gramlich E., 1994. “Infrastructure Investment: A Review Essay”, Journal of Economic Literature, 32: 1176–96.
Gupta S., Clements B., Baldacci E. and Mulas-Granados C., 2002. “Expenditure Composition, Fiscal Adjustment, and Growth in Low-income Countries”, IMF Working Paper No 02/77.
Hall R., 2009. “By How Much Does GDP Rise If the Government Buys More Output?”, Brookings Papers on Economic Activity, Fall: pp. 183–231.
http://dx.doi.org/10.1353/eca.0.0069
Heller, P. S., 2005. “Understanding Fiscal Space”, IMF Policy Discussion Papers.
King R.G., Plosser C.I., Stock J.H., Watson M.W., 1991. “Stochastic trends and economic fluctuations”, American Economic Review, 81(4): 819-840.
Levine R. and Renelt D., 1992. “A Sensitivity Analysis of Cross-country Growth Regressions”, American Economic Review, 82 (4): 942–63.
Milbourne R., Otto G. and Voss G., 2003. “Public Investment and Economic Growth”, Applied Economics, 35: 527–40.
http://dx.doi.org/10.1080/0003684022000015883
Mitra A., Varoudakis A. and Veganzones M.-A., 1998. “Productivity Growth and Technical Efficiency in the Manufacturing Industry of the states of India. The Role of Infrastructure”, Revue Economique, 49 (3): 845–55.
http://dx.doi.org/10.2307/3502814
Moosa I.A., 2002. “FDI: Theory, Evidence and Practice”, New York, Palgrave.
Mosley P., Hudson J. and Verschoor A., 2004. “Aid, Poverty Reduction and the “New Conditionality”, Economic Journal, 114, June: F217–F243.
http://dx.doi.org/10.1111/j.1468-0297.2004.00220.x
Pritchett L., 2000. “The Tyranny of Concepts: CUDIE (cumulated, depreciated, investment effort) is not Capital”, Journal of Economic Growth, 5: 361–84.
http://dx.doi.org/10.1023/A:1026551519329
Roy R., Heuty A., and Letouze E., 2006. “Fiscal Space for Public Investment: Towards a Human Development Approach”, Paper Prepared for the G-24 Technical Meeting, Singapore.
Sala-i-Martin X., 1997. “I Just Ran Two Million Regressions”, American Economic Review, 87 (2): 178–83.
Tsoukis C. and N. Miller., 2003. “Public Services and Endogenous Growth”, Journal of Policy Modeling, 25: 297-307.
http://dx.doi.org/10.1016/S0161-8938(03)00026-7
Turnovsky S. J., 2000. “Government policy in a stochastic growth model with elastic labor supply”, Journal of Public Economic Theory, 2(4): 389–433.
http://dx.doi.org/10.1111/1097-3923.00044
UNCTAD, 1999. “Foreign Direct Investment and the Challenge of Development”, Geneva, United Nation Publication.
Woodford M., 2011. “Simple Analytics of the Government Expenditure Multiplier”, American Economic Journal, 3:1–35.
http://dx.doi.org/10.1257/mac.3.1.1
Zandi M., 2011. “An Analysis of the Obama Jobs Plan”, Moody’s Analytics Dismal Scientist, online publication, September 9.
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Published
2016-09-22
How to Cite
Acharya, S., & Nuriev, S. (2016). Role of Public Investment in Growth and Poverty Reduction in Transition Economies. Journal of Reviews on Global Economics, 5, 310–326. https://doi.org/10.6000/1929-7092.2016.05.27
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