Government investment and economic growth

This thesis deals with the analysis of the effect of government investments on economic growth and private sector productivity. First, the development of these categories in the period 1995 to 2018 in the countries of the European Union are analyzed. Government investments are showed as a flow variable in the form of gross fixed capital formation of government institutions, and also as a stock variable - the total fixed assets of government institutions, i.e. public capital stock. Economic growth is analyzed by the growth rate of real gross domestic product. Private sector productivity is analyzed in four groups of branch as real gross value added per employee. Empirical estimation of the impact of government investments on economic growth and private sector productivity uses panel regression analysis including cross-sectional and period fixed effects on a sample of 28 European Union countries in the period 1995-2018. Two basic separate regression models are compiled - the first to estimate the impact of investments on economic growth, which is based on the basic macroeconomic equation of gross domestic product determined by the expenditure method. This model seeks to explain the impact of government investments by the demand side of the economy and in the short term. The second model estimates the impact of government investments on private sector productivity within three groups of main branch and is based on an adjusted production function. The analysis thus shifts to the supply side of the economy and the long term. The statistical significance of government investments was demonstrated for the first regression model and for the second regression model in the branch: Industry including energy, but with a negative sign, and Services